*?r*-Si 

1 


JJCSB   LIBRAKY 


")«, 


V- 


PRINCIPLES 


SOCIAL  ECONOMICS 


INDUCTIVELY   CONSIDERED    AND 
PRACTICALLY   APPLIED 


WITH 


CRITICISMS  ON  CURRENT  THEORIES 


GEORGE   GUNTON 


AUTHOR  OF  "  WEALTH  AND  PROGRESS 


G.  P.  PUTNAM'S  SONS 

NEW  YORK  LONDON 

•7  WBST  TWBXTY-THIRD  ST.        27  KING  WILLIAM  ST..  STRAND 


1891 

J0>  RBAFJA.    CALIF/ 


COPYRIGHT,  1891 
BY 

GEORGE  GUNTON 


ttbe  Iknicfterbocher  press,  t*ew 

Elearotyped  and  Printed  by 
G.  P.  Putnam's  Sons 


\  -  . 


TO   MY  WIFE 

WITHOUT  WHOSE  INSPIRATION   AND    AID   THIS    BOOK 
COULD   NOT  HAVE  BEEN  WRITTEN. 


PREFACE. 

IF  there  is  one  subject  that  should  be  more  attractive 
the  student  and  more  inspiring  to  the  citizen  than  an- 
other, it  is  that  of  social  economics,  because  it  deals 
directly  and  exclusively  with  the  influences  and  conditions 
which  control  all  human  welfare.  It  is  through  a  knowl- 
edge of  the  principles  and  laws  of  human  economics  that 
we  are  enabled  to  make  nature  contribute  to  man's  comfort 
and  luxury  by  substituting  abundance  for  poverty,  freedom 
for  slavery,  peace  for  war,  intelligence  and  morality  for 
ignorance  and  brutality  ;  in  short,  a  civilization  of  democracy 
and  culture  for  one  of  despotism  and  degradation.  When- 
ever the  science  which  should  furnish  the  key  to  nature's 
bounties  and  the  light  to  human  progress  becomes  unattrac- 
tive to  the  student  and  repulsive  to  the  average  citizen,  we 
may  be  assured  that  there  is  something  fundamentally  amiss 
with  the  conception  and  treatment  of  the  subject. 

This  is  precisely  the  case  with  political  economy  to-day. 
Instead  of  being  the  beacon-light  of  industrial  and  social 
affairs, — the  source  to  which  all  may  turn  for  safe  instruction 
and  hopeful  guidance, — it  is  the  "  dismal  science  "  which 
students  avoid,  statesmen  and  capitalists  disregard,  citizens 
ignore,  and  laborers  discredit.  Why  is  a  science  so  dreary 
and  pessimistic,  which  by  its  very  nature  should  be  fasci- 
nating and  hopeful  ?  The  obvious  answer  is,  that  it  fails 
to  fulfill  its  function  as  a  science  of  industrial  welfare  and 
social  advancement.  On  nearly  all  fundamental  questions 
affecting  the  production  and  distribution  of  wealth  its  doc- 
trines are  both  uncertain  and  inconsistent.  The  popular 


Vi  PREFACE. 

theory  of  wages  has  been  exploded  by  experience,'  and  the 
current  doctrines  of  value,  interest,  and  profit  have  for  gen- 
erations been  subjects  of  perplexing  controversy  between 
experts  and  sources  of  utter  bewilderment  to  students. 

This  is  mainly  due  to  the  fact  that  the  accepted  theories 
belong  to  the  hand-labor  conditions  of  the  seventeenth  and 
eighteenth  centuries,  which  have  very  little  relation  to  the 
factory  conditions  of  the  nineteenth  century.  Nor  should 
this  be  a  matter  of  surprise,  since  it  is  entirely  consistent 
with  the  law  of  industrial  evolution.  In  its  development 
society  has  assumed  several  distinct  and  essentially  different 
industrial  phases,  which  have  each  changed  the  economic 
structure  of  society,  shifting  the  centre  of  industrial  move- 
ment and  the  point  of  view  of  economic  study. 

Under  feudalism,  for  instance,  the  land-owning  class  was 
the  centre  of  all  social  and  industrial  movement.  Economic 
policy  therefore  was  considered  from  the  standpoint  of  a 
land-owning  class. 

With  the  development  of  manufacture  and  trade  however, 
came  a  radical  change  in  economic  relations.  Serfs  became 
wage  receivers,  and  the  cultivation  of  the  land  passed  to 
tenant  farmers,  which  change  transferred  the  distribution  of 
wealth  from  the  domain  of  authority,  to  that  of  economic  law. 
By  this  transition  the  social  basis  of  industrial  prosperity 
was  broadened,  and  the  centre  of  economic  movement  was 
shifted  from  the  industries  required  to  supply  the  needs 
of  a  small  land-owning  class  to  those  required  to  supply 
the  demands  of  a  relatively  large  commercial  class,  whose 
interests  were  more  varied  and  extensive.  In  proportion  as 
new  conditions  developed,  the  narrow  paternal  policy  which 
was  adapted  to  the  old  regime  became  inimical  to  the  welfare 
of  the  community,  and  a  reconstruction  of  economic  doctrine 
from  a  new  point  of  view  became  necessary.  The  efforts  of 
two  centuries  to  supply  this  need  culminated  in  the  "  Wealth 
of  Nations,"  which  really  marks  the  advent  of  middle-class 
political  economy,  whose  influence  has  practically  moulded 
the  economic  thought  of  the  present  century. 


PREFACE.  Vll 

For  the  same  reason  that  under  feudalism  every  thing  was 
viewed  from  the  standpoint  of  the  land-owner,  every  thing 
was  now  considered  from  the  standpoint  of  the  manufac- 
turer and  merchant,  whose  income  was  derived  from  trade. 

How  to  promote  sales  became  the  fundamental  idea  of 
what  has  been  well  named  the  "  Commodities  School "  of 
political  economy.  To  sell  extensively  necessitated  pro- 
ducing cheaply.  And  since  wages  formed  the  greater  part 
of  the  cost  of  production,  it  appeared  from  the  "  com- 
modities "  point  of  view  to  be  as  necessary  to  obtain  cheap 
labor  as  cheap  raw  material,  and  for  the  same  reason. 
Consequently  it  became  a  cardinal  doctrine  of  the  ''  Com- 
modities School "  that  large  profits  depend  upon  low 
wages.  "  It  has  been  my  endeavor  to  show  throughout  this 
work,"  says  Ricardo,  "  that  the  ratio  of  profits  can  never 
be  increased  but  by  a  fall  in  wages."  In  the  days  of  hand 
labor  and  small  factories,  when  the  consumption  of  the  upper 
and  middle  classes  furnished  a  sufficient  market  for  pro- 
ducts, this  cheap-labor  policy  was  successful  in  giving  profits. 

But  this  very  success  led  to  the  development  of  large 
factories,  which  were  destined  again  to  revolutionize  the 
economic  structure  of  society.  For  since  these  large  enter- 
prises required  a  more  extensive  market  for  their  success 
than  any  possible  increase  in  the  consumption  of  wealth  by 
the  upper  and  middle  classes  could  furnish,  the  habitual 
demands  of  the  masses  for  the  first  time  necessarily  became 
the  foundation  of  industrial  prosperity.  Therefore  it  is  in 
the  needs  of  the  masses  that  the  economics  of  the  future  must 
be  studied  and  statesmanship  determined. 

To  such  a  change  of  indu'strial  relations  Adam  Smith  and 
his  followers  were  altogether  oblivious ;  their  conception  of 
industrial  evolution  was  too  limited  to  enable  them  to  antici- 
pate it,  and  their  purely  "  commodities  "  point  of  view  pre- 
vented them  from  observing  it.  They  saw  the  importance 
of  the  factory  as  a  means  of  making  wealth  cheap,  but  they 
did  not  see  the  economic  importance  of  making  man  dear. 
Having  failed  to  recognize  the  laborer  as  the  great  factor  in 


VI 11  PREFACE. 

a  market  whose  consuming  power  must  be  increased,  they 
continued  to  treat  him  only  as  a  productive  force  in  the 
factory,  whose  cost  should  be  reduced,  on  the  theory  as  Mill 
puts  it,  that  "  profits  depend  upon  wages,  rising  as  wages 
fall  and  falling  as  wages  rise." 

Thus  through  an  effort  to  apply  erroneous  ante-factory 
theories  to  factory  conditions  political  economy  has  for 
three  quarters  of  a  century  been  made  a  gospel  of  cheap 
labor  and  an  enemy  of  social  advance. 

The  growing  incompetency  of  political  economy  to  deal 
with  modern  conditions  has  begun  to  be  recognized  by  in- 
ductive economists,  and  during  the  last  twenty  years  an 
increasing  departure  from  economic  orthodoxy  has  been 
manifest  among  the  younger  economists  of  Europe  and  this 
country,  which  is  now  developing  to  the  proportions  of  a 
new  school. 

In  breaking  from  the  hard  and  narrow  lines  established  by 
the  doctrines  of  early  English  economists,  the  "  New  School " 
has  already  rendered  an  important  service  to  economic  sci- 
ence, by  making  respectable  the  re-discussion  of  the  funda- 
mental principles  governing  industrial  relations  and  political 
policy,  in  the  light  of  modern  knowledge. 

Thus  far,  however,  its  work  has  been  critical  rather  than 
constructive.  It  has  contributed  far  more  to  break  up  the 
old  than  to  establish  a  new  body  of  economic  doctrine. 
Although  the  English  theory  of  wages  has  been  repudiated 
and  the  doctrine  of  laissez  faire  rejected  by  them,  no  ap- 
proximately adequate  explanation  of  wage  phenomena  has 
been  furnished,  nor  any  affirmative  principle  of  public  policy 
suggested. 

In  the  following  pages  I  have  endeavored  to  discuss  the 
principles  of  social  economics  from  the  nineteenth  century 
point  of  view.  If  the  facts  of  modern  experience  are  to  be 
the  court  of  final  appeal,  the  great  fundamental  fact  to  be 
recognized  in  our  society  is  the  democratic  basis  of  industry, 

The  factory  system  has  made  the  use  of  natural  forces 
(steam,  electricity,  etc.)  necessary  to  successful  industrial  en- 


PREFACE.  IX 

terprise.  Nature  is  intensely  democratic.  She  will  only 
work  cheaply  when  she  is  serving  a  large  number.  Kings  and 
aristocracies  may  command  the  unpaid  service  of  slaves,  but 
natural  forces  will  work  efficiently  only  for  the  million. 
Millionaires  could  not  travel  by  steam  or  communicate 
by  electricity  if  millions  of  workmen  did  not  use  the  same 
methods.  In  short,  the  success  of  all  machine-using  industries 
now  primarily  depends  on  the  extent  to  which  their  products 
are  consumed  by  the  masses.  Therefore  the  prosperity  of  the 
community  in  general  and  capitalists  in  particular  depends 
upon  increasing  the  wants  and  elevating  the  social  life  and 
character  of  the  laboring  classes.  Considered  from  this 
standpoint,  the  whole  subject  of  economics  assumes  a  new 
and  altogether  more  rational  and  humane  aspect.  It  ceases 
to  be  a  mere  "  science  of  wealth,"  subordinating  producers 
to  the  product,  and  becomes  a  science  of  human  welfare, 
making  the  social  life  of  the  producers  the  end  to  which 
the  creation  of  commodities  is  the  great  means.  In  other 
words,  it  is  transformed  from  a  dismal  science  of  pessimism 
and  despair,  which  complacently  sees  the  masses  crowded 
to  the  verge  of  starvation,  into  a  science  of  optimism  and 
hope,  which  bears  a  message  of  prosperity  and  progress  to 
the  whole  of  humanity. 

Besides  giving  economic  science  a  humane,  hopeful  aspect 
hitherto  conspicuously  wanting,  this  change  in  the  point 
of  view  makes  it  integral,  harmonious,  and  intelligible. 
Much  that  has  been  involved  in  confusion  becomes  simple  and 
clear;  much  that  has  been  mistakenly  regarded  as  unjust  and 
oppressive  enough  to  warrant  revolution,  becomes  obviously 
beneficent  and  progressive  ;  and  much  that  has  been  dole- 
fully taught  as  axiomatic  truth  is  seen  to  be  manifest  error. 

Moreover,  when  we  change  our  point  of  view  from  com- 
modities to  men,  and  make  the  laborer  the  initial  point  of 
observation,  the  questions  of  production  and  distribution 
become  susceptible  of  discussion  in  terms  intelligible  to  ordi- 
nary minds.  We  then  find  value  or  price  assuming  a  human 
basis,  and  commodities  are  seen  to  be  dear  or  cheap  not  as 


X  PREFACE. 

they  will  exchange  for  more  or  less  gold,  but  as  they  will 
exchange  for  more  or  less  of  labor,  as  economic  equivalents- 
With  this  idea  of  value  the  theory  of  supply  and  demand  of 
which  Malthusianism  and  the  wage-fund  fallacy  are  a  natural 
outcome,  is  incompatible.  The  ratio  in  which  a  given  quan- 
tity of  cloth  or  shoes  is  the  economic  equivalent  of  a  day's 
labor  can  no  more  be  determined  by  the  mere  fact  of  the 
quantity  of  cloth  or  the  number  of  laborers,  than  can  the 
moral  quality  of  a  robbery  by  the  number  of  thieves.  The 
only  basis  upon  which  two  things  can  be  economic  equivalents 
of  each  other  is  the  substantial  equality  of  their  cost  of 
production.  Upon  no  other  principle  can  exchanges  be 
economic,  equitable,  and  mutually  advantageous. 

The  principle  of  cost,  governed  as  it  is  by  the  cost  of  the 
dearest  portion  of  the  economic  supply  of  any  commodity, 
furnishes  a  keystone  to  the  arch  of  economic  science. 
It  supplies  the  basis  for  a  consistent  body  of  economic 
doctrine  capable  of  explaining  the  phenomena  of  wages, 
rent,  interest,  and  profit  upon  one  general  principle  of 
universal  application — namely,  the  law  of  economic  price 
and  its  corollary,  the  law  of  economic  surplus.  Instead  of 
a  system  of  "  commodity  "  economics  which  justifies  human 
degradation  as  a  means  of  cheapening  wealth,  we  have  a  sys- 
tem of  social  economics,  which  shows  that  the  most  effective 
means  of  promoting  the  industrial  welfare  of  society  on  a 
strictly  equitable  basis,  must  be  sought  in  influences  which 
develop  the  wants,  and  elevate  the  social  life  and  character 
of  the  masses.  Here  then  we  have  a  sound,  economic,  and 
broad  social  basis  for  intelligent,  humane,  and  progressive 
statesmanship,  which  shall  promote  individuality  without 
incurring  the  follies  of  laissez  faire,  and  utilize  the  educa- 
tional and  protective  functions  of  the  state  without  incurring 
the  dangers  of  paternalism. 

NEW  YORK  CITY,  January,  1891. 


CONTENTS. 


PART  I. 

THE  PRINCIPLES  OF  SOCIAL  PROGRESS. 

CHAPTER  I. 

SOCIAL   PROGRESS. 

FACE 

The  law  of  progress  the  key  to  history      .......  3 

The  nature  of  progress     .         .        ^         .......  4 

Progress  defined  and  phenomena  classified 5 

Its  tendency  shown  by  the  primitive  condition  of  man       ....  6 

By  the  development  of  the  family  as  a  social  unit .....  7 

By  the  rise  of  the  feudal  system    ........  8 

By  the  growth  of  free  towns  and  individual  rights          ....  9 

By  the  development  of  the  middle  class  and  the  factory  system      .         .  IO 
Industrial  progress  different  from  social  and  political         .         .         .         .n 

The  source  of  individual  freedom 12 

Socializing  effect  of  the  wages  system        .         .         .         .         .         .         .13 

Economic  interdependence  and  social  individuality  a  criterion  of  civilization,  14 

CHAPTER  II. 

THE  LAW   OF   SOCIAL   PROGRESS. 

The  elements  in  social  progress 15 

Natural  order  of  social  progress         .         .         .         .         .         .         .         .16 

Industrial  progress  the  basis  of  all  progress 17 

Comte's  mistake 18 

The  intellect  the  servant  of  human  wants          ......  19 

Relation  of  egoism  to  altruism           ........  2O 

Law  of  social  progress  summarized  ........  21 


Xll  CONTENTS. 

CHAPTER  III 

THE    CAUSE   OF    SOCIAL   PROGRESS. 

PAGE 

Human  wants  the  cause  of  social  evolution        .         .         .         .         .         .22 

Effectual  and  non-effectual  desires    ........       23 

The  social  source  of  equity 24 

Intelligence,  justice,  and  virtue  have  same  origin      .....       25 
As  human  wants  increase  civilization  advances  .  .         .         .26 

CHAPTER  IV. 

VERIFICATION    OF   THE    LAW    OF    SOCIAL   PROGRESS. 

Progress  accompanies  large  consumption  of  wealth  by  the  masses      .         .       27 
Small  consumption  in  Oriental  countries  .......       28 

Under  ancient  Greece  and  Rome,  few  rich,  many  poor     .         .  29 

Slavery  preponderates 30 

Why  ancient  philosophy  long  remained  without  effect        .         .         .         .31 
Arrested  progress  cause  of  Rome's  fall      .......        32 

CHAPTER  V. 

THE    RISE   AND    SOCIAL   POWER    OF    FREE   CITIES    AS    VERIFYING    THE    LAW   OF 
SOCIAL    PROCESS. 

Barbarism  supplanted  by  feudalism  ........  33 

Concentration  of  the  serfs  in  the  towns     .......  34 

The  burgesses  secure  control  of  the  towns  by  paying  rent           ...  35 

Insurrection  of  the  towns          .........  36 

Transformation  of  towns  into  free  cities 37 

The  cities  were  the  homes  of  freedom 38 

CHAPTER  VI. 

THE   FALL   OF   THE   FREE   CITIES   AND    ITS   EFFECT   UPON    SOCIAL   PROGRESS. 

Progress  arrested  by  their  fall  .........  39 

Spain  distracted  by  religious  wars     ........  40 

Premature  development  in  Italy        .         .         .         .         .         .         .         .41 

German  freedom  destroyed  by  imperial  alliance         .....  42 

French  cities  overcome  by  the  barons        .......  43 

In  England  the  cities  not  suppressed         .......  44 

Charters  rendered  inviolable     .........  45 

Labor  rents  superseded  by  wages      ........  46 

Feudalism  abolished  by  expansion  of  freedom  in  the  towns        ...  47 

Increased  wealth  of  the  middle  class .  48 


CONTENTS.  XI 1! 

CHAPTER  VII. 

THE    LAW   OF    SOCIAL    PROGRESS    AS   VERIFIED    IN    THE    PROGRESS  OF  POLITICAL 

AND    RELIGIOUS    FREEDOM. 

PAGE 

Political  power  of  English  Commons         .......       49 

Religious  and  political  liberty  follow  material  development       ...        50 
Wicliff's  Bible  succeeds  ;  Hussite  War  a  failure        .         .         .         .         .51 

Character  of  the  Jacquerie  and  the  Peasant  War        .          .          .  .52 

Social  character  of  the  Reformation 53 

Protestantism  due  to  the  social  power  of  middle  class         ....        54 
Condition  of  the  masses  from  the  fifteenth  to  the  eighteenth  century  .        55 

The  factory  system.     Industrial  legislation        ......       56 

Right  to  vote  extended  to  the  laboring  classes 57 

Superior  industrial  conditions  of  America  .          .         .         .          .          .58 

Difference  between  French  and  American  Revolutions      ....        59 

Industrial  prosperity  cause  of  our  free  institutions     .....        60 


PART  II. 
THE  PRINCIPLES  OF  ECONOMIC  PRODUCTION. 

CHAPTER  I. 

WEALTH    AND    THE    LAW    OF    ITS    PRODUCTION. 

Mill's  conflicting  definitions  of  wealth       .......  63 

Walker's  definition  ...........  64 

Perry  substitutes  the  word  property .65 

Essential  characteristics  of  wealth 66 

Wealth  defined 67 

Various  views  of  production      .........  68 

Theory  of  non-productive  labor         ........  69 

All  useful  labor  productive .70 

Differentiation  of  productive  effort 71 

Gratified  desires  complete  the  cycle  of  effort     ......  72 

Land,  labor,  and  natural  forces  the  necessary  factors  in  production  .          .  72 

Land  passive,  man  and  nature  active         .         .         .                  .         .         •  73 

Nature  and  character  of  capital         ........  74 

Economic  use  of  the  term  capital      ........  75 

Use  of  capital  determined  by  increasing  returns         .....  76 

Mistaken  praise  of  parsimony 77 

Capital  the  effect  not  the  cause  of  industrial  prosperity     ....  78 

Capital  arises  from  the  hope  of  gain          .......  79 

No  use  for  capital  in  barbarism         ........  80 

Social  consumption  the  cause  of  economic  production        .         .         .         .  81 


XIV  CONTENTS. 

PAGE 

Characteristic  simplicity  of  physical  wants         .......  82 

Complexity  of  social  wants 83 

Nature  responds  liberally  only  to  large  demand         .....  84 

New  wants  make  large  markets         ........  85 

High  wages  lead  to  low  prices 86 

Two  kinds  of  discoveries  under  ancient  and  modern  civilizations       .         .  87 

Why  ancient  civilizations  were  not  self-sustaining     .....  88 

Resume  of  laws  of  production  .........  89 

CHAPTER  II. 

ECONOMIC   VALUE. 

Adam  Smith's  definition  confusing   ........       90 

Relation  of  value  and  utility     .         .         .         .         .         .         .         .         .91 

Definition  of  value 92 

Price  and  value  identical  .         .         .         .         .         .         .         .          93,  94 

Value  a  relation  between  man  and  things  ......       95 

Mistaken  point  of  view 96 

Error  of  Mill  and  Cairnes 97 

Value  is  not  the  exchange  ratio  of  things  to  things,  but  of  things  to  man  .       98 
Effect  of  the  new  point  of  view 99 

CHAPTER  III. 

DEMAND    AND    SUPPLY   NOT   THE   LAW   OF   ECONOMIC    PRICES. 

Economic  price  not  governed  by  demand  and  supply         ....     100 

Gregory  King's  law  ..........     101 

It  applies  to  agricultural  products          .......     102 

Not  to  manufactured  products       .         .         .         .         .         .         .      103,  104 

The  theory  does  not  fit  the  facts 105 

Wages  do  not  obey  the  law  of  supply  and  demand    .....     106 

Economic  price  the  exchange  of  equivalents      ......     167 

Cost  the  basis  of  economic  equivalence     .......     107 

Testimony  of  McCulloch 108 

Cairnes'  error  regarding  supply  and  demand 109 

Commodities  do  not  create  demand  .         .         .         .         .         .         .no 

Demand  the  cause  of  supply     .         .         .         .         .         .         .         .         .in 

Origin  of  price          ..........  1 12 

Initial  point  of  supply      .         .         .         .         .         .         .         .         .         .113 

Price  phenomena  originate  in  man  .         .         .         .         .         .         .         .114 

CHAPTER  IV. 

THE   LAW   OF   ECONOMIC    PRICES. 

Exchange  ratio  of  wealth  and  service        .        ".         .         .         .         .         .115 

Meaning  of  economic  law          .         .         .          .         .          .         .         .         .116 


CONTENTS.  XV 

PAGE 

Laissez  faire  not  scientific         .         .         .         .         .         .         .         .         .117 

Economic  law  defined       .         .         .  •    .         .         .         .         .         .118 

Maximum  and  minimum  price,  how  determined        .....     120 

Cost  the  point  of  economic  equilibrium 121 

All  the  factors  in  production  must  receive  the  equivalent  of  what  they  con- 
tribute      ............     122 

The  possibility  of  an  economic  surplus      .......     123 

Equity  of  economic  law 124 

How  cost  of  production  affects  price          .         .         .         .         .         .         .125 

Origin  of  economic  profits         .         .         .         .         .         .         .         .         .126 

Their  equitable  basis    ..........     127 

Primary  law  of  price         ..........     128 

Character  of  price  variations 129 

Prices  in  the  same  market  tend  to  uniformity   ......     130 

Statement  of  law  of  prices 131 

Verification  of  the  law  of  prices         . '       .         .         .         .         .         .         .     132 

Agricultural  prices    .         .         .         .         .         .         .         .         .         .         .133 

Relation  of  quantity  to  price 134 

All  prices  regulated  by  cost  of  dearest  portion  ......     135 

Quality  of  labor  determines  its  cost 136 

Variation  in  wages    ...........     137 

CHAPTER  V. 

THE  LAW   OF  THE  COST   OF   PRODUCTION. 

Popular  errors  regarding  cost  of  production 138 

Simple  phenomena  misleading  .........  139 

Ricardo's  illustration         .         .         .         .         .  •  .         .         .         .  140 

Cost  and  quantity     ...........  141 

Brassey's  experience  in  several  countries    .......  142 

High  wages  make  cheap  wealth         ......          .         .  143 

Important  relation  of  wages  to  machinery  ......  144 

Use  of  capital,  how  determined         ........  145 

Nature  and  function  of  capital  ........  146 

Importance  of  large  market       .........  147 

Wages  measure  the  laborer's  consumption 148 

The  true  law  of  prices      .  149 

CHAPTER  VI. 

MONEY  AND   ITS  ECONOMIC   FUNCTION. 

Walker's  definition  of  money    .         .         .         .         .         .         .         .         .150 

Money  and  wealth  not  identical 151 

Money  an  evidence  of  credit     .         .         .         .         .         .         .         .         .152 

Definition  of  money          ..........     153 


XVI  CONTENTS. 

PAGE 

Function  of  money 154 

Evils  of  fluctuations  in  the  value  of  money  ,  .  .  .  .  .155 

Of  what  should  money  be  made  ? 156 

Essential  attributes  of  money 157 

It  must  have  maximum  value  in  minimum  form  .  .  .  .  .158 
Claims  of  a  tabular  standard  .  .  .  .  .  .  .  .  .159 

Its  difficulties  ...........  160 

Need  of  a  scientific  price-level 161 

Depreciation  of  money     .         .         .         .         .         .         .         .         .         .162 

Inadequacy  of  metallic  money  ........     163 

Basis  of  a  paper  currency         .         .         .         .         .         .         .         .         .164 

Necessity  of  gold  and  silver 165 

Because  universally  acceptable 166 

Proportion  between  property  and  credit  money  .....  167 

Herbert  Spencer's  view 168 

Essentials  of  a  sound  monetary  system      ........     169 

How  to  regulate  the  quantity    .         .         .         .         .         .         .         .         .170 

Advantages  of  private  enterprise       .         .         .         .         .         .         .         .171 

Money  should  be- taken  out  of  politics  .  .  .  •  .  .  .  .172 


PART  III. 

THE  PRINCIPLES  OF  ECONOMIC  DISTRIBUTION. 
CHAPTER  I. 

THE   DISTRIBUTION   OF   WEALTH. 

Distribution  inseparable  from  production  ......     175 

It  is  an  economic  transfer.     Difference  between  consumption  and  pro- 
ductive use         .         .         .         .         .         .         .         .         .         .         .176 

Function  of  productive  wealth  .         .         .         .         .         .         .         .177 

Order  of  economic  distribution          ........     178 

Walker's  inconsistency     . 179 

Walker's  doctrine  of  "  residual  claimant "  fallacious          .         .         .      180,181 

Historic  order  of  distribution 182 

Economic  order — wages,  rent,  interest,  profit   .         .         ,         .         .         .183 

CHAPTER  II. 

SOME  RECENT  THEORIES   OF  WAGES   CONSIDERED. 

Wood°s  theory  of  wages 184 

Doctrine  of  final  utility .185 

Mistaken  application  of 186 

Wages  not  uniform  in  all  industries  .......     187 


CONTENTS.  XVI  i 


Laborers'  welfare  depends  on  absolute  not  relative  income        .         .         .  188 
Capital  sometimes  yields  no  interest          .         .         .         .         .         .         .189 

Wages  not  determined  by  rate  of  interest  ......  190 

Nor  must  they  be  confounded  with  profit  .  .  '  .  .  .  191 

Uniformity  in  wages  and  prices  ;  diversity  in  profits  ....  192 

Prof.  Clark's  theory  of  wages  .........  193 

He,  like  Marx,  confounds  the  last  increment  with  the  dearest  .  194,  195 

Price-fixing  increment  not  the  same  in  manufacture  as  in  agriculture  .  196 

Confounding  wages  with  rent  .........  197 

Price  and  surplusage 198 

Defects  of  Prof.  Clark's  theory  summarized  .  .  .  .  .  .199 

CHAPTER  III. 

THE   LAW    OF    WAGES. 

Requisites  of  a  sound  theory 200 

Definition  of  wages 201 

Real  and  nominal  wages  ..........  202 

Wages  the  economic  price  of  labor  ........  203 

Statement  of  law  of  wages 204 

Wages  determined  by  standard  of  living  .......  205 

Prices  of  labor  and  of  products  move  differently         .....  206 

Dearest  laborers  fix  price  of  labor     ........  207 

Poorest  capitalists  fix  price  of  commodities 208 

Relation  between  wages  and  savings-bank  deposits   ....     209,  210 
Difference  in  cost  of  living  the  source  of  savings       .         .         .         .         .211 

Agriculture  unfavorable  to  savings 212 

Foreign  laborers  save  more  because  they  cost  less 213 

Very  highest-paid  laborers  strike       ........  214 

Family  income  regulated  by  its  cost 215 

How  the  cost  of  living  is  determined 216 

Remedy  for  low  wages 217 

CHAPTER  IV. 

RENT,  ITS   ECONOMIC   LAW   AND   CAUSE. 

The  Ricardo- Walker  definition  of  rent     .......  218 

Amended  definition           ..........  219 

Economic  production  as  applied  to  land 220 

The  law  of  rent  stated 221 

Rent  governed  by  the  law  of  surplusage   .......  222 

Walker's  explanation  of  rent     .........  223 

Fertility  not  cause  of  rent         .........  224 

Rent  has  a  social  origin    ..........  225 

Relation  of  rent  to  prices          .........  226 


XVI 11  CONTENTS. 

PAGB 

Economic  basis  of  rent 227 

Effect  of  population  on  prices 228 

Effect  of  improved  methods 229 

Rent  follows  and  leads  the  movement  of  wages         .....  230 

Is  rent  a  social  tax  ?  .         .         .         .  .         .         .         .         .231 

Difference  in  the  economic  order  of  using  land  and  machinery .         .         .  232 

Relation  of  rent  to  wages  illustrated          . 233 

High  wages  cause  of  high  rents         ........  234 

Effect  of  abolishing  rent  ..........  235 

ResumJ  of  the  doctrine  of  rent           ........  236 

CHAPTER  V. 

THE   LAW    OF    INTEREST. 

Interest  related  to  capital  as  rent  is  to  land 237 

Walker's  view  considered          .........  238 

Not  consistent  with  facts       .........  239 

No-interest  capital  common      .........  240 

Economic  movement  of  capital          ........  241 

Economic  movement  of  interest         ........  242 

Improved  methods  constantly  push  capital  towards  the  no-interest  point   .  243 

True  law  of  interest 244 

The  law  illustrated 245 

Surplus  enlarged  by  increased  production           ......  246 

Entrepreneur's  profit  comes  from  surplus  above  rent  and  interest       .         .  247 

The  social  character  of  interest 248 

CHAPTER  VI. 

THE   LAW    OF   PROFIT. 

Orthodox  errors  the  source  of  socialistic  theories       .....  249 

Employers'  view  of  profit  and  wages         .......  250 

Theories  of  Rodbertus  and  Marx      .         .         .         .         .         .         .         .251 

Statement  of  Marx's  theory  of  surplus  value      .         .         .         .         .         .252 

Misleading  illustrations    ..........  253 

Fallacy  of  his  theory  demonstrated   ........  254 

Relation  of  labor  to  value 255 

Distribution  of  cost-items  does  not  alter  value 256 

Cause  of  Marx's  error 257 

His  mistaken  assumptions         .         .         .         .         .         .         .         .         .  258 

Economic  evolution  of  profit     .........  259 

Equity  of  economic  profit          .........  260 

Surplus  does  not  prove  exploitation  ........  261 

Ratio  of  product  to  profit  and  wages         ......      262,  263 

Illustrated  by  cotton  industry  .........  264 


CONTENTS.  xix 

FACE 

Mr.  Giffen's  view  of  wages  and  product 265 

His  error 266 

Distribution  of  economic  benefits     ........  267 

Ratio  of  wages  and  profits  to  product 269 

Defective  modes  of  calculation          ........  270 

They  lead  to  false  conclusions        .         .         ...         .         .         •         •  271 

Omitted  data  vitiate  conclusions        ........  272 

Salaries  and  depreciation  of  capital  overlooked                   ....  273 

Wages  have  increased  relatively  to  net  product          .....  274 

Relative  decrease  of  profits       .........  275 

Correct  mode  of  ascertaining  economic  condition  of  laborer       .         .         .  276 

Incompleteness  of  obtainable  data    ........  277 

Table  showing  ratio  of  wages  to  profits     .......  278 

Nature  of  industrial  tendencies         ........  279 


PART  IV. 

THE  PRINCIPLES  OF  PRACTICAL  STATESMANSHIP. 
CHAPTER  I. 

LAISSEZ   FAIRE  AS  A   GUIDING   PRINCIPLE  IN   PUBLIC   POLICY. 

Origin  of  laissez-faire  doctrine           ........  283 

Adam  Smith  and  the  French  Physiocrats  .......  284 

Negative  character  of  laissez  faire-   .         .         .         .         .         .         .         .285 

Its  erroneous  postulates   .         .         .         .         .         .         .         .         .     286,  287 

False  views  of  competition        .         .         .         .         .         .         .         .         .  288 

Misuse  of  the  term  natural  law          ........  289 

Natural  and  human  selection  .........  290 

Survival  of  the  unfittest    ..........  291 

Government  essential  to  society 292 

Character  of  economic  competition  .         .         .         .                  .         .         .  293 

The  competing  units  must  be  approximately  equal    .....  294 

The  necessity  of  opportunity    ....         ;         ....  294 

CHAPTER  II. 

THE   STATE  J    OR,    THE   NATURE   AND   FUNCTION   OF   GOVERNMENT. 

The  state  as  distinguished  from  society     .......  295 

No  absolute  rights  in  society    .....                  ...  296 

All  government  is  representative       ........  297 

The  state  is  the  authoritative  expression  of  the  aggregate ....  298 

Relation  of  the  state  to  the  individual       .                   299 


XX  CONTENTS. 

PAGE 

Social-organism  theory  of  Plato,  Hobbes,  Rodbertus,  Marx,  and  Spencer.  300 

Spencer's  claim  that  society  is  an  organism,  stated  ....  301,  302 

His  fundamental  propositions  considered       ......  303 

Radical  distinction  between  society  and  an  individual  organism  .  .  304 

Society  is  not  an  organic  entity 305 

Social  evolution  different  from  physical 306 

Mr.  Spencer  logically  supports  socialism 307 

Clark's  attempt  to  apply  this  theory  to  economics  .....  308 

His  position  analyzed  ..........  309 

The  function  of  government  .  .  .  .  .  .  .  .  .310 

Importance  of  mutual  dependence  . 311 

Controlling  principle  in  statesmanship 312 

Individual  action  preferable  to  state  action        .         .         .         .         .         .313 

Difficulty  of  determining  their  respective  spheres  ....  314,  315 

Sphere  of  individual  action 315 

Sphere  of  state  action 316,  317 

Difference  between  protection  and  paternalism 318 

State  functions  essentially  protective  and  educational  ....  319 

CHAPTER  III 

THE  PRINCIPLE   OF   INTERNATIONAL  TRADE. 

Necessity  of  national  development 320 

Society  a  means  for  individual  advancement 321 

The  nation 322 

Socializing  tendency  of  manufacturing  industries 323 

Importance  of  their  development 324 

A  large  home  market  necessary 325 

Superiority  of  home  over  foreign  market  .......  326 

Foreign  markets  and  home  wages     ........  327 

A  nation  is  rich  by  what  it  uses,  not  by  what  it  sells          ....  328 

Test  of  economic  cheapness .         .      329,  330 

False  assumption  of  free-traders 331 

Operation  of  free  trade  illustrated     .......      332,  333 

Uneconomic  competition  .........  334 

Basis  of  economic  competition  .         . 335 

Popular  fallacies  regarding  the  nature  of  a  tariff 336 

The  law  of  international  competition        .         .         .         .  .         .  337 

Weakness  of  the  infant-industry  theory     .......  338 

Civilization  depends  upon  protecting  the  higher  against  the  lower     .          .  339 

India,  Ireland,  and  Russia        .........  340 

England,  America,  and  Continental  countries  ......  341 

Protection  and  home  prices 342 

Proper  mode  of  testing  a  tariff          ....'....  343 

Ultimate  effect  of  a  protective  tariff  on  profits 344 


CONTENTS.  XX 

PAG  • 

Effect  of  protecting  the  higher  wage-level 345 

Illustrated  by  cotton  industry 346 

Led  to  improved  methods  of  production         ......     347 

Effect  on  the  industrial  development  in  America  .         .  .         .     348 

Wages  in  non-protected  industries    ........     349 

Erroneous  views  regarding 350 

Mr.  Elaine's  mistaken  view      .         .         .         .         .         .         .         .         -35* 

Has  not  outgrown  the  English  theory  of  wages      .....     352 

How  protection  affects  wages  .........     353 

Wages  can  only  be  raised  by  social  forces 354 

How  to  examine  wages  phenomena  .         .         .         .         .         .         .         -355 

Industrial  improvement  affects  all  classes 356 

Effect  of  protection  upon  other  countries  .....      357,  358 

How  protection  promotes  the  economic  selection  of  industries  .         .         -359 

It  leads  to  free  trade 360 

Its  domestic  application 361 

CHAPTER  IV. 

THE  PRINCIPLES   OF  ECONOMIC   TAXATION. 

Basis  of  equitable  taxation        .         .         .         .         .         .         .         .         .  362 

It  should  come  from  surplus  incomes    .......  363 

The  mobility  of  taxes .  364 

Their  relation  to  wages 365 

How  transferred  from  laborer  to  employer    .         .         .         .         .         .  366 

How  he  pays  them  out  of  his  surplus     .         .         .         .         .         .         .  367 

How  his  surplus  is  replenished  from  nature 368 

Taxation  like  wages  a  form  of  consumption      ......  369 

Economic  importance  of  taxation  exaggerated  ......  370 

Taxes  enable  government  to  exercise  its  functions     .         .  .         .  371 

How  taxes  should  be  levied,  paid,  and  collected 372 

Evils  of  direct  taxation 373,  374 

Property  and  incomes  tax          .........  375 

Advantages  of  indirect  taxation         ........  376 

Taxes  should  be  levied  upon  real  estate    .......  377 

Equitable  nature  of  a  land  tax  ........  378 

Objections  answered 379 

No  profits  on  taxes.     Mill's  error     ........  380 

Taxation  is  public  consumption  of  wealth 381 

Henry  George's  delusion 381 

CHAPTER  V. 

BUSINESS   DEPRESSIONS. 
How  distinguished  from  famines       ........     383 

Historical  facts  about  depressions     ........     384 


xxil  CONTENTS. 

PAGE 

Inadequate  causes  assigned       .........  385 

Low  consumption  the  real  cause        ........  386 

Evils  attending  factory  system           ........  387 

Indications  of  arrested  consumption          .         ...         .         .         .         .  388 

Mistaken  industrial  policy .         .         .  389 

Economists  largely  responsible  for  this 390 

Sound  economics  would  ..ead  to  their  gradual  extinction    ....  391 

Two  points  which  should  be  realized  by  capitalists   .....  392 

Increase  consumption  by  raising  wages     .......  393 

Improve  laborers'  social  condition    ........  394 

Necessity  of  an  industrial  barometer 394 

Idleness  statistics  should  be  frequently  collected 396 

CHAPTER  VI. 

COMBINATION   OF   CAPITAL. 

Social  alarm  created  by  spinning-jenny 397 

Modern  opposition  to  trusts  of  similar  nature 398 

Relation  of  capital  to  consumption  ........  399 

Combination  of  capital  raises  the  plane  of  competition      ....  400 

Concentration  of  capital  and  competition           ......  401 

Efficiency  not  number  of  competitors  the  criterion  of  competition     .         .  402 

Economic  incentive 403 

Power  of  potential  competition         ........  404 

Mobility  of  capital  diminishes  as  that  of  comsumable  wealth  increases       .  405 

Effect  of  no-profit  capital          .........  406 

Limit  of  concentration     ..........  407 

Purchasing  power  of  wages  and  the  concentration  of  capital      .         .         .  408 

Effects  of  trusts  on  prices 409 

Standard  Oil  Trust 410,411 

Its  economy  in  utilizing  waste       .         .         .         .         .         •         •         .412 

Its  economies  extended  to  other  countries -4*3 

Trusts  unlike  corners       .        .        .        .        .        .        .                 .        .  414 

CHAPTER  VII. 

COMBINATION   OF   LABOR. 

Combination  of  labor  accompanies  that  of  capital      .         .         .         .         .  415 

Both  have  an  economic  function 410 

Objections  to  trades-unions      .........  4*7 

Concentration  the  keynote  of  all  progress 4*8 

False  notions  of  individual  freedom           ......         .  4J9 

One-sided  economics 420 

Impossibility  of  individual  contracts -  421 

Incompatible  with  industrial  complexity  .......  422 


CONTENTS,  XX111 

PAGE 

Economic  nature  of  labor  organizations 423 

Strikes  and  corners 424 

Social  contact  essential  to  progress .425 

It  develops  intelligence  and  refines  manners 426 

Social  effects  of  labor  unions 427 

Economic  effect  of  labor  unions 428 

Their  relation  to  hours  of  labor  and  wages    ......  429 

They  must  be  judged  by  their  permanent  effect 430 

Gain  and  loss  by  strikes   ..........  431 

Unfair  criticisms 432 

Trades-unions  are  necessary  institutions -      .  433 

SUMMARY  AND  CONCLUSION. 

Character  of  social  progress 434 

Nature  of  production  and  of  value    ........  436 

Nature  and  order  of  distribution  ......  436 

Duties  of  statesmanship 438 

INDEX 443 

INDEX  TO  "  WEALTH  AND  PROGRESS  " 449 


PART  L 
THE    PRINCIPLES    OF   SOCIAL    PROGRESS. 


PRINCIPLES  OF  SOCIAL  ECONOMICS. 


CHAPTER  I. 

SOCIAL  PROGRESS. 
SECTION  I. —  The  Nature  and  Meaning  of  Social  Progress. 

THE  promotion  of  social  progress  may  be  regarded  as  the 
primary  object  of  all  human  institutions.  The  wisdom  or  un- 
wisdom of  any  form  of  government,  political  and  industrial 
policy,  or  moral  code — regardless  of  climate,  country,  or  civiliza- 
tion— depends  upon  whether  or  not  it  tends  to  promote  the 
social  progress  of  the  people.  When  we  can  furnish  an  adequate 
explanation  of  the  law  of  social  progress  we  shall  be  in  a  position 
to  explain  why  the  march  of  civilization  has  been  so  marked  and 
continuous  in  some  countries  and  so  retarded  in  others  ;  why 
nations  once  the  most  advanced  are  now  greatly  in  the  rear  ; 
why  the  ancients  made  such  progress  in  art  and  philosophy, 
while  they  lacked  simple  contrivances  with  which  to  procure 
the  common  comforts  and  decencies  of  daily  life  ;  why  general 
poverty,  religious,  social,  and  political  despotism  prevail  in  some 
countries,  while  comparative  abundance  with  religious  freedom 
and  political  democracy  obtain  in  others.  "  The  law  of  prog- 
ress," says  Fiske,1  "  when  discovered,  will  be  found  to  be  the 
law  of  history.  The  great  fact  to  be  explained  is  either  the 
presence  or  the  absence  of  progress,  and  when  we  have  formu- 
lated the  character  of  progress  and  the  conditions  essential  to  it, 
we  have  the  key  to  the  history  of  the  stationary  as  well  as  of  the 
progressive  nations.  When  we  are  able  to  show  why  the  latter 
"Cosmic  Philosophy,"  vol.  ii.,  pp.  195,  196. 
3 


4  THE  KEY  TO  SOCIAL  HISTORY, 

have  advanced,  the  same  general  principle  will  enable  us  to  show 
why  the  former  have  not  advanced."  Indeed,  to  explain  the 
nature,  law,  and  cause  of  social  progress  is  not  only  to  lay  the 
foundation  for  the  science  of  social  economics,  but  it  is  also  to 
furnish  the  key  to  social  philosophy,  and  thereby  to  establish  a 
rational  basis  for  statesmanship  and  social  reform.  This  in- 
volves, first  of  all,  the  consideration  of  what  constitutes  progress. 
Unless  we  understand  what  social  progress  is,  there  can  be  no 
intelligent  consideration  of  the  law  and  cause  of  its  development, 
and  hence  no  approximately  correct  science,  either  of  economics 
or  of  government,  is  possible. 

Progress  is  commonly  regarded  as  synonymous  with  improve- 
ment. This  expression  confounds  the  process  with  the  product. 
It  states  what  progress  does  rather  than  what  it  is.  If  asked  what 
constitutes  the  progress  of  the  plant,  it  would  not  be  correct  to 
say  the  flowers,  buds,  and  foliage.  Their  condition  correctly 
indicates  the  state  of  the  plant's  progress,  but  they  no  more  con- 
stitute the  progress  than  the  apple  constitutes  the  tree,  or  the 
barometer  the  storm.  The  progress  of  the  plant  consists  of  a 
series  of  changes  that  take  place  in  its  organization  before  the 
flower  appears,  and  of  which 'it  is  the  result.  So,  too,  of  improve- 
ment. While  progress  usually  implies  a  change  for  the  better, 
the  improvement  is  not  the  progress,  but  the  result  of  it  ;  it  is  the 
change  of  form  or  condition  which  precedes  and  produces  the 
improvement.  Although  all  progress  is  simply  change,  all  change 
is  not  necessarily  progress.  It  may  be  retrogression.  What  then 
are  the  distinguishing  characteristics  of  the  changes  which  con- 
stitute progress  ?  Fortunately  science  has  furnished  the  answer 
to  this  question,  so  far  as  physical  development  is  concerned. 
The  investigations  of  Linnaeus,  Wolf,  Goethe,  Schelling,  Von 
Baer,  Darwin,  and  others  have  established  the  fact  that  the 
"growth  or  progress  of  organisms,  both  vegetable  and  animal, 
consists  of  a  series  of  structural  changes  from  a  relatively  simple 
to  a  relatively  complex  state  of  organization.  For  more  than 
half  a  century  this  definition  of  progress  has  so  completely  stood 
the  test  of  verification  that  it  has  become  an  accepted  scientific 
truth,  and  now  both  plants  and  animals  are  classified  in  the  scale 
of  development  according  to  the  simplicity  or  complexity  of  their 
organization. 


DEFINITION  OF  SOCIAL   PROGRESS.  5 

If  we  examine  the  history  of  social  institutions  we  shall  find 
that  this  distinguishing  characteristic  of  progress  is  equally  true 
of  society.  Although  the  precise  forms  of  the  earliest  phases  of 
social  life  are  difficult  to  determine,  modern  investigation  has 
proved  beyond  question  that  society  in  its  primitive  stages  was  a 
homogeneous  aggregate  of  human  beings  without  industrial 
specialization  or  social  or  political  individuality,  and  that  all 
progress  from  that  time  to  this  has  been  a  movement  towards 
a  greater  complexity  of  life  and  definiteness  of  individual,  social, 
and  political  functions.  Progress  in  general,  therefore,  may  be 
defined  as  a  tendency  to  change  from  a  relatively  simple  to  a 
relatively  complex  organization. 

Although  this  movement  from  the  simple  to  the  complex  is  the 
distinguishing  characteristic  of  all  progress,  the  form  it  assumes 
in  physical  and  social  phenomena  is  very  different.  In  all  the 
phases  of  physical  development  the  tendency  is  to  produce  a 
greater  perfection,  individuality,  and  freedom  of  the  organism, — 
the  highest  type  of  which  is  man.  Society  is  not  an  individual 
organism,  but  an  association  of  individual  organisms.  Social 
development,  therefore,  does  not  consist  in  organic  differentiation, 
but  in  the  differentiation  of  the  social  environment  of  individuals. 

In  considering  social  advancement,  therefore,  we  are  concerned 
only  with  social  phenomena  ;  that  is  to  say,  with  the  influences 
which  affect  the  material,  political,  and  moral  condition  of  man 
in  society  ;  nor  are  we  called  upon  to  deal  with  the  origin  of  the 
elements  in  his  social  character,  but  only  with  the  development 
of  their  expression. 

The  phenomena  of  society  may  be  classified  as  social  and 
economic  ;  the  former  relates  to  man's  political  and  ethical  life, 
and  the  latter  to  his  industrial  efforts.  In  order  to  correctly 
understand  progress  in  society,  it  will  be  necessary  briefly  to 
consider  the  historic  tendency  of  these  two  phases  separately. 

SECTION  II. —  The  Historic   Tendency  of  Social  Progress. 

Although  the  genesis  of  man  is  still  an  unsettled  question,  the 
fact  that  he  once  existed  as  a  mere  physical  being  scarcely 
superior  to  the  lower  animals  is  conclusively  established.1 

1  The  wild  men  in  the  interior  of  Borneo  are  described  by  Dalton  as  living : 
"  absolutely  in  a  state  of  nature,  who  neither  cultivate  the  ground  nor  live  in 


6  THE  JELLY-FISH  PERIOD   OF  SOCIETY. 

Recent  investigations  have  shown  that  primitive  man  was  so 
devoid  of  social  life  and  character  as  to  neither  cook  his  food 
nor  build  himself  a  hut  to  live  in.  In  many  instances  the  insti- 
tution of  marriage  was  entirely  unknown  ;  in  others  the  conjugal 
ties  were  so  slender  that  they  existed  only  until  the  birth  of  the 
child.1  The  interminable  struggle  for  life  against  the  elements, 
wild  beasts,  and  his  fellows,  made  man's  localization  necessary, 
and  brought  him  into  social  and  personal  relations  that  gradually 
assumed  a  more  permanent  or  tribal  character.  This  may 
properly  be  said  to  constitute  the  first  stage  of  social  existence — 
the  jelly-fish  period  of  society.  Here  the  social  homogeneity 
was  such  that  every  thing  was  owned  in  common — even  wives 
and  children.  Authorities  agree  that  "  the  primitive  condition 
of  man  socially  was  one  where  every  man  and  woman  were 
regarded  as  equally  married  to  one  another,"  and  "any  woman 
who  attempted  to  resist  the  marriage  privileges  claimed  by  any 
member  of  the  tribe  was  liable  to  severe  punishment. "  *  The  child 
had  no  particular  father  or  mother,  but  belonged  to  the  tribe.8 

The  struggle  for  existence  being  now  between  tribes,  war  was 
the  chief  occupation,  and  those  who  were  most  proficient  and 
brave  as  warriors  naturally  became  the  most  honored  and 
influential  leaders  of  the  tribe.  One  of  the  chief  characteristics 
of  tribal  warfare  was  that  the  will  of  the  victor  became  the  law 
of  the  vanquished.  Accordingly,  if  the  chief  desired  to  take  a 

huts,  who  neither  eat  rice  nor  salt,  and  who  do  not  associate  with  each  other, 
but  rove  about  some  woods  like  wild  beasts  ;  the  sexes  meet  in  the  jungle,  or 
the  man  carries  away  a  woman  from  some  campong.  When  the  children  are 
old  enough  to  shift  for  themselves,  they  separate  neither  one  afterwards  think- 
ing of  the  other.  At  night  they  sleep  under  some  large  trees,  the  branches  of 
which  hang  low."  Sir  John  Lubbock's  "  Origin  of  Civilization,"  pp.  5,  6  ; 
Ibid. ,  chapter  iii.  See  also  Lichtenstein's  "  Travels  in  South  Africa,"  p.  137  ; 
"  Expedition  to  Borneo,"  vol.  ii.,  p.  10  ;  Lubbock's  "  Prehistoric  Times,"  pp. 
563-5,  595,  596  ;  Lyell's  "  Antiquity  of  Man,''  pp.  377-80  ;  Sproat's  "  Scenes 
and  Studies  of  Savage  Life,"  p.  120  ;  Dubois'  "  Description  of  the  People  of 
India,"  p.  3  ;  "  Transactions  Ethnological  Society,"  new  series,  vol.  iii.,  p.  248. 

1  Lubbock's  "Origin   of   Civilization,"  pp.    53-57-     See   also   Sir   Edward 
Belcher's    "  Transactions    Ethnological    Society,"   vol.    v.,    p.    45  ;    Starke's 
"  Primitive   Family,"  pp.   82-84. 

2  Lubbock's  "Origin  of  Civilization,"  p.  67;  Starke's  "Primitive  Family," 
p.  245  ;  McLennan's  "  Primitive  Marriages,"  pp.  229,  230. 

s  Lubbock's  "  Origin  of  Civilization,"  p.  71. 


THE   FAMILY    THE   SOCIAL    UNIT.  7 

woman  from  among  his  war  captives,  he  could  have  the  exclusive 
use  and  enjoyment  of  her  as  against  any  and  all  other  members 
of  the  tribe.1  This  instituted  a  departure  from  tribal  homoge- 
neity which  naturally  led  first  to  a  certain  degree  of  personal 
domestic  exclusiveness,  then  to  individual  marriages,  and  finally 
to  the  family  group.  Thus,  through  the  gradual  process  of  social 
differentiation  and  integration,  society  was  slowly  transformed 
from  a  simple  homogeneous  mass,  in  which  the  tribal  aggregate 
was  the  only  unit,  into  a  relatively  complex  social  organization 
with  the  family  as  the  unit,  possessing  definite  social  functions, 
rights,  and  powers.  It  should  be  remembered,  however,  that 
this  social  individuation  conferred  no  rights  or  powers  upon  the 
individual,  but  only  upon  the  family.3  Indeed,  it  is  a  universal 
law  in  society  that  the  exercise  of  social  rights  extends  only  with 
the  growth  of  the  social  unit.  Hence,  when  the  family  became 
the  unit,  it  acquired  all  the  social  rights  and  powers  of  the  unit. 
But  all  rights  absolutely  stopped  at  this  point.  The  individual 
members  of  the  family  acquired  no  more  social  recognition  by 
this  change  than  had  been  previously  accorded  to  the  individual 
members  of  the  tribe.  The  family  was  recognized  solely  through 
its  male  head,  whose  power  was  absolute,  even  to  life  and  death. 

With  the  settlement  of  the  family  came  the  necessity  of  culti- 
vating the  lands.  This  led  to  the  substitution  of  an  agricultural 
for  a  pastoral  life,  and  the  right  of  private  for  public  ownership 
in  land  and  its  products.8 

Another  feature  of  this  regime  was  the  practice  of  enlarging 
the  family  by  enforced  or  voluntary  adoption  ;  those  entering  the 
family  by  this  means  were  kinsmen  ; — a  fiction  that  nothing,  but 
"A  war  captive,  however,  was  in  a  peculiar  position  ;  the  tribe  had  no  rights 
to  her  ;  her  capturer  might  have  killed  her  if  he  chose  ;  if  he  preferred  to  keep 
her  alive  he  was  at  liberty  to  do  so  ;  he  did  as  he  liked,  and  the  tribe  was  no 
sufferer."  Sir  John  Lubbock's  "Origin  of  Civilization,"  p.  71  ;  also  McLen- 
nan's  "  Primitive  Marriages,"  pp.  43,  44. 

5  "  At  the  outset,  the  peculiarities  of  law  in  its  most  ancient  state  lead  us 
irresistibly  to  the  conclusion  that  it  took  precisely  the  same  view  of  the  family 
group  which  is  taken  of  individual  men  by  the  system  of  rights  and  duties  now 
prevalent  throughout  Europe." — Maine's  "  Ancient  Law,"  p.  129.  "  But 
ancient  law,  it  must  again  be  repeated,  knows  next  to  nothing  of  Individuals. 
It  is  concerned  not  with  Individuals,  but  with  Families  ;  not  with  single  human 
beings,  but  with  groups." — Ibid.,  p.  250.  "Village  Communities,"  p.  10. 

3  Maine's  "  Early  History  of  Institutions,"  pp.  I,  2,  73-79. 


8  THE  PATRIARCHAL  FAMILY. 

the  absolute  authority  of  the  head  of  the  family  could  have  estab- 
lished. In  this  way  the  simple  primitive  family  made  up  of  blood 
relations,  was  expanded  into  the  patriarchal  family,  held  together 
by  the  tie  of  a  mythical  kinship.1  Greater  sacredness  of,  and 
protection  to,  life  and  property  came  with  this  higher  state  of 
organization,  and  "  marriage  by  capture  "  gave  place  to  marriage 
by  purchase,  transferring  the  selection  of  a  wife  from  the  muscu- 
lar authority  of  the  savage  suitor,  to  the  civil  authority  of  the 
parent.2 

These  social  relations  continued  theoretically  until  the  Chris- 
tian era,  and  practically  until  the  middle  of  the  sixth  century. 
From  the  time  of  the  Twelve  Tables,  B.C.,  450,  to  that  of 
the  Justinian  Code,  progress  was  very  tardy,  but  tended  tow- 
ards a  further  differentiation  of  the  social  polity  in  the  direc- 
tion of  substituting  the  individual  for  the  family  as  the  social 
unit.  This  movement,  which  is  most  distinctly  indicated  by 
the  innovations  made  upon  the  domain  of  patria  potestas  (the 
authority  of  the  father  over  the  person  and  property  of  his  de- 
scendants), though  imperceptible  during  the  latter  four  hundred 
years  of  the  Republic,  began  to  show  itself  in  the  early  days  of 
the  Empire. 

If  we  pass  from  the  ancient  to  the  modern  world,  where  social 
progress  has  been  more  marked,  we  shall  find  that  its  movement 
has  been  everywhere  distinguished  by  the  same  general  charac- 
teristics. During  the  savage  struggle  for  imperial  supremacy 
which  covered  the  face  of  Europe  for  nearly  four  hundred  years 
after  the  fall  of  the  Western  Empire,  in  which  all  permanent 
authority  and  recognized  law  were  practically  abolished,3  the  patri- 
archal system  virtually  disappeared  and  society  reorganized  into 
the  feudal  system.  Social  institutions  then  assumed  a  different  as- 
pect. Instead  of  being  composed  of  family  groups,  held  together 

1  We  must  look  on  the  family  as  constantly  enlarged  by  the  adoption  of 
strangers  within  its  circle,  and  we  must  try  to  regafd  the  fiction  of  adoption  as 
so  closely  simulating  the  reality  of  kinship  that  neither  law  nor  opinion  makes 
the  slightest  difference  between  a  real  and  an  adoptive  connection." — Maine's 
"Ancient  Law,"  p.  128.  See  also  "Early  History  of  Institutions,"  p.  310; 
"Village  Communities,"  p.  115  ;  Lubbock's  "  Origin  of  Civilization." 

'Maine's  "Ancient  Law,"  pp.  119-133  ;  cf,  Lubbock's  "Origin  of  Civili- 
zation," p.  52  ;  "  Fiske's  "  Cosmic  Philosophy,"  vol.  ii.,  pp.  220,  221. 

*  Guizot's  "  History  of  Civilization,"  pp.  6,  69  ;  also  Hallam's  "  History  of 
the  Middle  Ages,"  vol.  i.,  p.  92. 


SOCIAL   CHARACTER   OF  FEUDALISM.  9 

by  a  mythical  kinship  under  parental  despotism,  subject  to  impe- 
rial absolutism,  society  consisted  of  manorial  or  baronial  groups, 
held  together  by  mutual  dependence  upon  the  land-owner,  who, 
while  giving  nominal  allegiance  to  the  king,  was  practically  inde- 
pendent of  him.1  The  individual  instead  of  the  family  was  the 
social  unit,  and  industrial  interest  instead  of  kinship  was  the 
cohesive  principle  in  society  2  ;  land,  or  wealth,  instead  of  birth, 
became  the  basis  of  rank  and  authority.8 

No  sooner  had  feudalism  become  the  settled  order  of  society 
than  the  process  of  further  social  differentiation  set  in.  One  of 
the  earliest  evidences  of  this  was  the  localization  of  the  serfs 
on  the  estates  of  the  respective  barons,  and  their  division  into 
classes  as  "hinds"  and  "artificers."  By  this  division  of  labor 
the  former  became  permanently  ruralized,  and  the  latter  central- 
ized, into  groups  whose  history  is  that  of  modern  civilization. 
During  the  tenth  century  these  groups  grew  into  permanent  towns 
and  became  the  centres  of  trade  and  industry.  As  they  increased 
in  population  and  wealth  they  grew  in  social  activity,  intelligence, 
and  power  ;  and  hence  became  the  permanent  source  of  the 
further  division  of  labor,  the  specialization  of  social  and  religious 
functions,  and  of  personal  and  political  rights. 

By  the  middle  of  the  eleventh  century  we  find  the  burghers 
asserting  their  right  to  the  ownership  of  property,  and  forcibly 
resisting  the  efforts  of  the  barons  to  despoil  them.  Early  in  the 
twelfth  century  the  towns  began  to  obtain  the  right  of  local  self- 
government.  During  the  thirteenth  and  fourteenth  centuries  the 
serf  was  differentiated  from  the  lord's  estate,  and  became  an 
economic  and  social  individual.  The  separation  of  political  in- 
stitutions from  the  authority  of  the  Church,  and  the  power  of 
Parliament  over  the  Crown  were  also  positively  asserted  during 
this  period. 

1  ' '  The  kingdom  was  as  a  great  fief,  or  rather  as  a  bundle  of  fiefs,  and  the 
king  little  more  than  one  of  a  number  of  feudal  nobles,  differing  rather  in  dig- 
nity than  in  power  from  some  of  the  rest." — Hallam's  "  History  of  the  Middle 
Ages,"  vol.  i.,  p.  136. 

2  "  It  was  feudalism  which  for  the  first  time  linked  personal  duties,  and  by 
consequence  personal  rights,  to  the  ownership  of  land." — Maine's  "Ancient 
Law,"  p.   102. 

3  Hallam's  "  Middle  Ages,"  vol.  i.,  p.  88;  also  ibid.,  p.   122,  and  Guizot's 
"  History  of  Civilization,"  p.  67. 


IO  FREE   CITIES  AND    THE  MIDDLE   CLASS. 

This  was  followed  in  the  fifteenth  and  sixteenth  centuries  by  a 
general  breaking  up  of  the  feudal  system  and  a  new  formation  of 
social  institutions.  Throughout  Europe  the  political  elements 
integrated  into  definite  nations.1  The  gentry  and  interior  no- 
bility, who  were  economically  and  socially  segregated  from  their 
class,  and  the  superior  artisans  who,  by  the  growth  of  manufac- 
ture and  trade  in  the  Free  Towns,  had  become  "  master  artificers," 
formed  a  new  social  stratum — the  mercantile  or  middle  class — 
which  henceforth  became  the  enterprising  and  progressive  ele- 
ment in  society.  With  the  rise  of  this  class  came  a  new  era  in 
civilization.  Under  its  influence  industrial,  political,  and  reli- 
gious institutions  were  revolutionized.  In  this  period  the  dis- 
covery of  America  and  the  passage  to  India  by  the  Cape  of  Good 
Hope,  and  the  use  of  the  mariner's  compass  were  consummated  ; 
painting  with  oil  and  the  manufacture  of  paper  from  linen  were 
invented  ;  the  right  of  private  judgment  in  religion  and  the 
supremacy  of  parliamentary  government  were  permanently  estab- 
lished. From  this  came  the  use  of  steam,  the  invention  of  the 
spinning-jenny  and  the  power-loom,  and  the  establishment  of 
the  factory  system,  the  railroad,  steamship,  and  telegraph,  with 
their  natural  accompaniments — the  daily  press,  cheap  books,  and 
popular  education. 

As  the  outgrowth  of  these  movements  slavery  has  been  abol- 
ished from  Christendom  and  the  principle  of  civil  and  religious 
freedom  for  the  individual,  without  regard  to  caste,  color,  race, 
or  sex,  has  been  established  in  the  most  advanced  countries,  and 
is  destined  to  be  extended  to  the  whole  human  race. 

Thus  the  universal  tendency  of  progress  in  society  is  to  in- 
crease the  power,  rights,  and  freedom  of  the  individual,  and 
diminish  the  arbitrary  control  of  collective  authority. 

SECTION  III. — Historic   Tendency  of  Economic  Progress. 

Upon  the  principle  that  all  progress  is  governed  by  one  general 
law,  it  is  commonly  supposed  that  progress  must  assume  the 
same  form  in  economics  that  it  does  in  society  and  politics. 
Consequently,  because  social  progress  tends  toward  greater 
democracy  of  administration,  it  is  held  that  industrial  progress 

1  Guizot's  "  History  of  Civilization,"  chap.  xi. 


CHARACTER   OF  ECONOMIC  PROGRESS.  II 

must  be  in  the  direction  of  the  public  administration  of  industry. 
A  little  reflection  will  show  this  to  be  a  mistake.  Although 
industrial  progress  has  a  tendency  toward  greater  specialization, 
the  form  it  assumes  differs  from  that  in  social  and  political 
institutions,  as  much  as  progress  in  the  latter  differs  from  that 
in  physical  phenomena. 

The  essential  difference  between  political  and  industrial  insti- 
tutions is  that  the  utility  of  the  former  consists  in  their  harmoni- 
ous adaptation  to  the  social  habits  and  character  of  the  people, 
whereas  the  utility  of  industrial  institutions  consists  in  their 
economic  efficiency — their  capacity  of  furnishing  wealth  cheaply. 
Since  social  institutions  will  necessarily  more  completely  reflect 
the  desire  and  character  of  the  people  in  proportion  as  the  masses 
participate  in  their  construction,  it  follows  that  progress  in 
society  is  a  tendency  towards  democracy  of  administration  of 
political  and  social  affairs.  With  economics  the  case  is  different. 
No  advantage  can  accrue  to  the  laborer  or  the  community  by  any 
change  of  industrial  institutions  which  does  not  enable  the  la- 
borer to  obtain  more  wealth  for  a  day's  work.  Whether  industry 
is  conducted  on  the  democratic  town-meeting  plan,  or  by  a  few 
private  individuals,  cannot  possibly  affect  the  welfare  of  the  com- 
munity, except  as  it  promotes  that  end.  Unless  democracy  of 
industrial  administration  would  cheapen  wealth,  it  would  be  a 
burden  upon  the  community,  without  any  compensating  advan- 
tage, since  it  would  involve  the  care  of  management  without  any 
beneficial  result. 

A  brief  survey  of  the  history  of  industrial  progress  will  show 
that  the  increasing  efficiency  of  productive  methods,  and  hence 
the  improvement  of  the  means  of  getting  a  living,  has  two 
characteristics.  One  is  the  division  and  concentration  of  labor 
power,  the  other  is  the  increase  and  social  diffusion  of  political 
power.  The  former  tends  to  specialize  and  limit  the  laborer's 
economic  function,  the  latter  tends  to  generalize  and  extend  his 
social  function.  Thus,  as  the  laborer's  industrial  individuality 
diminishes,  the  influence  of  his  social  and  political  individuality 
increases. 

Primitive  industry,  like  primitive  society,  was  very  simple  and 
homogeneous.  Every  one  performed  practically  all  kinds  of 
labor  with  equal  proficiency.  Progress  from  that  point  to  the 


12  MISTAKEN  NOTIONS  ABOUT  FREEDOM. 

present  has  been  a  continuous  tendency  toward  a  greater  divi- 
sion, and  specialization  of  labor  and  concentration  of  capital. 
The  tendency  of  this  movement  has  ever  been  to  differentiate 
productive  force  into  numerous  portions,  integrating  the  laborer 
and  machinery  upon  special  branches,  every  one  of  which  is 
dependent  not  only  upon  the  action  of  the  others,  but  upon  the 
united  action  of  the  whole.  Thus  industrial  differentiation,  in- 
stead of  increasing,  tends  to  diminish  the  economic  individuality 
of  the  laborer.  It  is  because  of  this  tendency  to  make  the  laborer 
an  almost  automatic  part  of  a  highly  complex  productive  ma- 
chine, that  the  present  industrial  system  is  regarded  as  inimical  to 
his  social  freedom.  Those  who  take  this  view,  and  they  are  very 
numerous,  lay  great  stress  upon  the  fact  that  the  laborer  is  an 
employe.  To  them  the  very  stipulation  of  income  means  limita- 
tion of  freedom.  Of  all  the  objections  urged  against  the  wages 
system,  this  is  probably  the  most  universal,  and  is  regarded  as 
the  most  fundamental.  They  think  the  only  conditions  under 
which  social  freedom  is  possible,  is  where  the  laborers  employ 
themselves.  The  fallacy  in  this  position  arises  from  a  miscon- 
ception of  the  idea  of  freedom.  Freedom  is  not  a  mere  theoretic 
form,  but  a  sturdy  fact.  It  does  not  consist  in  the  formal  per- 
mission, but  in  the  actual  power,  to  go  or  to  do.  Nothing  can 
give  social  and  political  freedom  but  wealth  ;  the  freedom  that 
wealth  affords  does  not  depend  upon  whether  the  laborer  works 
for  himself  or  for  another,  but  it  depends  entirely  upon  how  much 
wealth  he  receives.  There  is  no  power  in  nature,  society,  or 
government  that  can  make  a  poor  man  free.  Poverty  is  social 
weakness  ;  it  is  the  source  of  slavery,  and  the  background  of 
despotism. 

Social  well-being  consists  not  so  much  in  doing,  as  in  having. 
In  proportion  as  man's  energies  are  expended  in  obtaining  a  living, 
the  possibilities  of  his  social,  intellectual,  and  moral  life  and  de- 
velopment 'are  restricted.  In  order,  then,  to  maximize  man's 
social  individuality,  it  is  necessary  to  minimize  the  expenditure 
of  his  physical  energy.  This  is  precisely  what  the  division  of 
labor,  the  concentration  of  capital,  and  the  development  of  the 
factory  system  promote. 

The  de-individualization  of  the  laborer  as  a  producer  promotes 
his  social  advancement  in  many  ways.  In  the  first  place,  it  makes 


INFLUENCE   OF  THE  WAGES  SYSTEM.  13 

the  wages  or  stipulated-income  system  necessary.  In  proportion 
as  the  income  of  any  class  becomes  stipulated,  it  becomes  less 
contingent.  To  the  extent  that  this  occurs,  material  subsistence 
becomes  more  certain,  which  is  the  first  step  toward  social  and 
intellectual  development.  So  long  as  the  laborer's  living  is 
uncertain,  he  is  in  a  more  or  less  constant  state  of  anxiety  and 
suspense,  which  tends  to  make  progress  in  the  higher  phases  of 
social  life  impossible. 

Another  beneficial  feature  of  this  tendency  is  that  it  concentrates 
the  laborers,  and  specializes  their  occupations.  By  this  means 
they  are  not  only  forced  into  closer  and  more  frequent  intercourse 
with  each  other,  but  it  also  increases  their  mutual  interdependence. 
The  material  condition  of  the  masses  cannot  be  improved,  nor 
can  their  political  freedom  or  social  character  be  developed,  by 
any  thing  which  does  not  increase  the  economic  interdepend- 
ence of  the  people,  and  weld  them  together  in  social  classes.  In 
proportion  as  this  process  of  social  differentiation  increases, 
interests  and  sympathies  broaden,  altruism  is  developed,  and  the 
welfare  of  all  becomes  identical  with  that  of  each.  Nothing  so 
surely  aids  social  advancement  as  that  which  makes  it  necessary 
for  millions  to  rise  together.  No  industrial  system,  no  civiliza- 
tion, no  religion  even  is  worth  sustaining  which  only  saves  a  few. 

Another  feature  of  the  wages  system  is  the  tendency  to  promote 
more  constant  employment.  There  is  no  fact  more  conclusively 
established  in  the  history  of  industrial  progress  than  that  the 
concentration  of  capital  in  fixed  plants  and  large  enterprises 
makes  a  marked  increase  in  the  permanence  of  employment. 
As  industrial  establishments  increase  in  size,  constant  employ- 
ment of  capital  becomes  necessary.  The  loss  involved  in  the 
short  stoppage  of  a  large  factory  will  soon  be  more  than  equal  to 
the  profit  of  a  year's  business.  Whatever  increases  permanence 
in  the  use  of  capital  necessarily  increases  the  constancy  of 
employment.  Thus,  as  the  factory  methods  develop,  the  capi- 
talist has  to  pay  the  penalty  for  enforced  idleness  through  loss  or 
bankruptcy  ;  and  hence  permanent  employment  becomes  one  of 
the  features  of  the  industrial  expertness  of  capitalistic  manage- 
ment. Under  the  individual  or  self-employing  regime  this  was 
not  the  case.  When  the  hand  weaver  failed  to  sell  his  cloth  or 
make  a  living,  he  could  starve,  beg,  go  to  jail,  or  die,  as  the  case 


14  ECONOMIC  PROGRESS  DEFINED. 

might  be.  His  poverty  involved  nobody  else,  while  under  the 
wages  system  the  great  capitalist,  nay,  the  whole  community, 
is  involved  with  the  enforced  idleness  of  the  laborer. 

Accordingly,  the  world  over,  we  find  that  permanence  of 
employment  increases  and  enforced  idleness  diminishes  where 
the  wages  system  is  most  developed  and  capital  most  concen- 
trated. This  is  clearly  shown  by  the  currents  of  emigration. 
People  always  leave  those  localities  and  countries  where  employ- 
ment is  the  most  precarious  and  least  remunerative,  and  move 
towards  those  where  it  is  most  permanent  and  best  rewarded. 
Hence  the  tendency  of  emigration  is  always  from  those  coun- 
tries where  the  wages  system  and  factory  methods  are  least 
developed,  to  those  where  they  are  most  highly  developed.  It 
is  from  China,  Bohemia,  Austria,  Italy,  Germany,  and  Ireland, 
towards  England  and  America,  that  laborers  emigrate,  and  not 
from  England  or  America  to  Continental  Europe  and  Asia. 

The  industrial  system,  which  tends  to  socialize  the  laborer,  in- 
crease the  economic  interdependence  of  the  capitalist,  consumer, 
and  workman,  and  make  the  material  well-being  of  the  masses 
the  basis  of  business  success,  necessarily  possesses  all  the  possi- 
bilities of  an  ever-advancing  civilization.  Progress  in  politics  and 
society,  therefore,  may  be  defined  as  the  tendency  to  increase  the 
sovereignty  of  the  individual  and  diminish  the  arbitrary  authority 
of  the  state  by  establishing  greater  democracy  of  administration. 
In  economics  k  may  be  defined  as  the  tendency  to  centralize 
industrial  administration  and  responsibility,  de-individualize  the 
laborer  as  a  producer  and  socialize  the  results  in  better  and 
cheaper  products. 


CHAPTER  II. 

THE  LAW  OF    SOCIAL  PROGRESS. 
SECTION  I. —  The  Elements  of  Social  Progress. 

IN  the  preceding  chapter  two  facts  were  established.  First, 
that  social  progress  is  the  movement  of  society  toward  the  reali- 
zation of  the  highest  material,  intellectual,  and  moral  possibilities 
in  human  life  ;  i.e.,  toward  the  plane  of  greater  human  well- 
being.  Second,  that  this  progressive  movement  consists  in  a 
series  of  changes  from  a  relatively  simple  to  a  relatively  complex 
state  of  social  organization.  We  now  come  to  the  consideration 
of  the  law  by  which  this  movement  takes  place  ;  that  is  to  say, 
the  order  in  which  the  different  phases  of  social  phenomena  are 
developed.  These  may  be  grouped  under  three  general  heads, 
as  the  material,  the  intellectual,  and  the  moral.  The  material 
element  in  social  progress  is  not  merely  that  which  relates  to 
man's  physical  necessities,  but  every  thing  that  relates  to  his 
wants  and  desires,  of  whatever  kind, — the  gratification  of  which 
involves  the  production  of  wealth.  These  will  be  found  to  in- 
clude, not  only  the  necessities  for  food  and  shelter,  but  those  for 
education,  art,  travel,  intellectual  and  moral  culture,  and  even 
religion.  In  fact,  there  are  no  desires  of  which  man  is  capa- 
ble whose  gratification  does  not  directly  or  indirectly  necessitate 
the  production  of  wealth.  The  material  element  in  social 
progress,  therefore,  includes  every  thing  which  relates  to  the 
gratification  of  human  wants,  desires,  and  aspirations.  The  intel- 
lectual element  is  that  which  relates  to  man's  capacity  to  acquire 
and  apply  knowledge  ;  it  is  the  analyzing,  reasoning,  judging, 
and  directing  element.  Morality  simply  relates  to  the  quality  of 

is 


1 6  THE   ORDER   OF  SOCIAL  PROGRESS. 

human  conduct.  We  designate  conduct  as  moral  or  immoral 
according  as  it  directly  or  indirectly  tends  to  promote  or  retard 
social  well-being  or  human  happiness. 

While  these  phenomena  are  distinct  in  their  character  they  are 
inseparable  in  their  relation  ;  hence  no  differentiation  can  result 
in  permanent  integration  and  specialization  which  does  not  find 
expression  in  all  these  phases  of  social  life.1  If  the  development 
of  any  one  of  these  elements  should  be  promoted  at  the  expense  of 
the  rest,  it  must  necessarily  fail  of  its  function  because  not  one  of 
them  can  permanently  exist  without  the  sustaining  influence 
of  the  others.  The  increased  production  and  accumulation  of 
wealth,  for  example,  could  not  continue  without  the  increase  of 
intelligence  to  devise  the  means  necessary  to  produce  it,  and 
a  corresponding  advance  in  the  social  integrity  to  sustain  it.  A 
general  advancement  of  intelligence  is  impossible  without  the 
relative  elimination  of  poverty  and  vice  ;  and  no  considerable 
advance  in  ethics  can  take  place  without  a  previous  increase  in 
material  well-being. 

SECTION  II. —  The  Natural  Order  of  Social  Progress. 

Although  the  various  elements  of  social  development  are  in- 
separably connected  with,  and  constantly  act  and  react  upon 
each  other,  one  of  them  must  necessarily  sustain  the  initiative 
relation  to  the  others,  or  no  movement  could  take  place.  Which 
of  these  occupies  that  position  ?  The  answer  to  this  question 
must  explain  the  relative  position  these  elements  occupy  in  the 
scale  of  development  and  the  historic  order  of  their  appearance, 
— both  of  which  are  indicated  by  their  functional  relations. 

Morality,  being  the  quality  of  conduct,  necessarily  arises  from 
motives,  decisions,  and  actions,  and  hence  must  be  a  resultant  of 
the  other  elements.  Morality  is  the  fruit  and  not  the  root ;  it  is 
the  objective  point  towards  which  progress  tends,  and  conse- 
quently is  the  last  to  be  developed.8  The  intellect,  as  already 
explained,  is  the  reasoning,  analyzing,  judging  faculty  ;  its  func- 
tion consists  exclusively  in  adapting  means  to  an  end.  It 
occupies  the  position  of  servant  and  guide  to  the  other  faculties. 
' '  The  progress  of  society  is  not  moral  progress,  or  intellectual  progress,  or 
material  progress  ;  but  it  is  the  combination  of  all  the  three." — Fiske's  "  Cosmic 
Philosophy,"  vol.  ii.,  p.  245. 

*  Ward's  "Dynamic  Sociology,"  vol.  i.,  p.  216. 


MATERIAL  PROGRESS   THE  FIRST.  1? 

Human  activities  are  never  exerted  except  for  the  gratification  of 
some  desire,  want,  sympathy,  sentiment,  or  ambition  arising  in 
the  feelings.  Intellectual  or  physical  effort  put  forth  without 
some  motive  or  desire  would  be  senseless.1  Of  necessity,  there- 
fore, the  material  element  in  social  progress  is  first  in  the  scale  of 
development  and  supplies  the  motive  which  calls  the  intellect 
into  activity.  All  the  inventions  and  discoveries  in  manufacture, 
science,  and  literature,  all  the  doctrines  of  economics,  ethics, 
politics,  and  religion  have  been  produced  by  the  intellect  in  its 
effort  to  gratify  the  desires.  These  efforts  have  been  perpetuated 
or  abandoned  in  proportion  as  they  were  found,  by  experience, 
to  be  favorable  or  unfavorable  to  human  well-being. 

Clearly,  therefore,  the  natural  order  of  the  various  elements  in 
social  development  is  :  the  material,  the  intellectual,  the  moral ; 
the  material  being  the  basis  or  motor  force,  the  intellectual  the 
means,  and  the  moral  the  result." 

Although  the  fact  that  progress  of  society  has  always  been  in 
the  ascending  order — from  the  material  to  the  moral — has  been 
generally  recognized  as  a  matter  of  history,  it  has  been  almost 
uniformly  ignored  as  a  principle  in  social  philosophy. 

There  appears  to  have  been  an  undefined  apprehension  that  to 
permanently  regard  the  material  as  the  preponderating  element 
in  human  progress  is  to  belittle  the  influence  exercised  by  the 
intellect  upon  the  advance  of  civilization.  This  is  a  mistake. 
The  danger  of  inverting  the  order  of  its  operation  is  what  is  most 
likely  to  occur.  It  is  precisely  at  this  point  that  some  of  the  most 
fatal  errors  have  "entered  the  popular  theories.  The  best  writers 
agree  that  in  the  early  stages  of  social  growth  the  material 
element  is  first  in  order  and  influence,  but  seeing  that  the  mate- 
rial conditions  and  moral  character  advance  more  rapidly  as  the 

1  Comte's  "Positive  Philosophy,"  pp.  384-50x3. 

8  "  The  same  may  be  said  of  all  the  so-called  virtues — honesty,  benevolence, 
justice,  etc.  These  qualities  are  the  result  of  his  civilization.  His  moral 
nature  has  sprung  from  his  rational  faculties,  and  may  be  traced  back  to  its 
origin  in  sympathy  :  at  first  confined  to  his  immediate  companions  or  offspring  ; 
thence  gradually  extended  to  embrace  his  own  clan  ;  then  his  particular  tribe, 
race,  or  country  ;  then,  to  a  limited  degree,  the  whole  human  race  ;  and  lastly, 
as  exhibiting  the  highest  type,  and  quite  rare  even  among  the  most  civilized, 
made  to  comprehend  the  lower  brute  creation  in  one  beneficent  scheme  of 
morals."— Ward's  "  Dynamic  Sociology,"  vol.  i.,  p.  461. 
2 


1 8  COMTE'S  MISTAKE. 

intellect  develops,  they  appear  to  assume  that  the  order  of  prog- 
ress changes  and  the  intellectual  instead  of  the  material  element 
becomes  the  dominating  influence  in  social  progress.  Even 
Comte  says  :  "  If  our  affective  faculties  were  subordinated  to  the 
intellectual,  all  idea  of  improving  the  social  organism  would  be 
senseless.  .  .  .  For  our  affective  faculties  must  preponderate, 
not  only  to  rouse  the  reason  from  its  natural  lethargy,  but  to  give 
a  permanent  aim  and  direction  to  its  activity, — without  which  it 
would  be  ever  lost  in  vague,  abstract  speculation." '  After 
having  thus  affirmed  the  truth  of  the  ascending  order,  he  says  : 
"  This  is  the  natural  order  .  .  .  whereas  the  reverse  is  the 
rational  one  and  that  which  gains  upon  the  other  in  proportion 
as  the  intellect  assumes  a  larger  share  in  the  human  evolution."2 
Thus,  according  to  Comte,  upon  the  dawn  of  the  human  intellect, 
the  natural  order  became  irrational.  Buckle,  Draper,  and  Guizot 
all  take  practically  the  same  position.  Though  they  do  not  go 
through  the  same  course  of  reasoning  that  M.  Comte  does,  they 
act  upon  the  same  conclusions.  They  all  admit  that  material 
conditions  must  precede  intellectual  and  moral  development,  and 
then  insist  that  the  intellect  is  the  source  of  human  progress.5 

For  the  assumption  that  the  order  of  evolution  is  thus  reversed 
by  the  accession  of  the  intellect  there  is  no  warrant  either  in  rea- 
son or  fact.  That  the  material  element  in  progress  is  greatly 
accelerated  by  the  reflex  action  of  the  intellect,  and  the  intellec- 
tual by  the  moral,  and  that  progress  is  greatly  enhanced  thereby, 
is  unquestionable.  But  that  in  no  way  implies  any  change  in  the 
law  of  social  movement.  The  fact  that  the  intellect  fills  a  much 
larger  sphere  in  human  life  than  it  once  did,  does  not  tend  to  show 
that  it  has  in  any  way  changed  its  relative  position.  The  differ- 
ence in  the  activities  of  man  in  modern  civilized  society  and 
those  of  his  savage  ancestors  simply  represents  the  difference  in 
the  quality  and  quantity  of  his  desires.  The  intellect,  by  the 
very  nature  of  its  function,  is  not  a  propelling,  but  a  guiding 
element.  It  is  the  servant  and  not  the  master  of  human  wants. 

1  "Positive  Philosophy,"  p.  500.     American  edition. 

3  Ibid.,  pp.  685,  636. 

3  Buckle's  "  History  of  Civilization,"  vol.  i.,  pp.  30,  31  ;  cf.  also  pp.  242 
and  509  ;  Draper's  "  Intellectual  Development  of  Europe,"  p.  591  ;  Guizot's 
"  History  of  Civilization,"  pp.  66,  84,  85,  and  230. 


THE  INTELLECT  OBEYS  THE  WANTS.  19 

The  operation  of  this  principle  is  clearly  illustrated  in  the  social 
effect  of  the  discovery  of  the  mariner's  compass,  the  art  of  print- 
ing, the  use  of  gunpowder,  etc.  It  was  not  until  some  consider- 
able portion  of  mankind  desired  the  products  of  other  nations 
that  navigation  became  necessary  and  the  mariner's  compass 
could  be  of  service  to  man,  while  gunpowder  and  printing, 
having  been  invented  before  the  desire  for  them  was  developed, 
had  to  wait  thousands  of  years  before  they  could  exercise  any 
influence  upon  civilization.1  Although  our  acquisitions  in  sci- 
ence, art,  labor-saving  inventions,  etc.,  are  the  work  of  the  intellect, 
it  is  only  when  those  achievements  minister  to  human  wants  that 
its  activities  tend  to  promote  human  progress. 

It  is  true,  however,  that  the  influence  of  a  new  acquisition  by 
the  intellect  seldom  fully  expands  itself  in  the  satisfaction  of  the 
wants  to  which  it  directly  relates,  but  it  frequently  exercises  a 
reflex  influence,  the  tendency  of  which  is  to  again  increase  the 
desire  and  consequently  still  further  stimulate  its  own  activity. 
For  example,  the  art  of  printing  not  only  increased  the  number 
of  books  sufficiently  to  supply  those  who  had  already  acquired  a 
positive  desire  for  reading,  but  it  so  cheapened  them  as  to  put 
them  within  the  reach  of  a  large  class  to  whom  such  a  luxury  had 
previously  been  impossible, — thereby  greatly  increasing  the  desire 
for,  as  well  as  the  possibilities  of,  obtaining  knowledge.  Again, 
when  the  power-loom  and  the  spinning-jenny  were  invented, 
they  not  only  enabled  the  manufacturers  to  supply  the  increasing 
demand  for  cotton  cloth,  but  they  so  reduced  its  price  that  it  could 
become  an  article  of  common  use  among  the  masses.  This  fact 
naturally  soon  gave  rise  to  such  desires  for  other  and  superior 
fabrics  that  the  result  was  to  ultimately  revolutionize  the  industrial 
system  of  all  Europe. 

It  is  therefore  not  true  that  the  natural  order  of  social  evolu- 
tion is  changed  by  the  development  of  the  intellect.  To  whatever 
extent  the  sphere  and  activities  of  the  intellect  may  be  increased, 
its  relative  position  and  function  must,  by  the  very  nature  of  its 
constitution,  remain  the  same. 

A  similar  error  prevails  in  regard  to  the  position  of  ethics  in 
social  progress.  Because  personal  morality,  commercial  integ- 
rity, industrial  equity,  and  social  harmony  are  seen  to  increase 

1  See  Part  II.,  chapter  i. 


2O  ERRORS  REGARDING  ALTRUISM. 

as  the  altruistic  feelings  advance  in  society,  it  is  held  that  altruism 
and  egoism  are  essentially  antagonistic  to  each  other.  Egoism  is 
a  term  usually  employed  as  relating  to  self,  and  altruism  as  relating 
to  others  ;  hence  all  actions  and  feelings  are  regarded  as  egoistic 
in  proportion  as  they  tend  to  promote  the  welfare  of  self  to  the 
exclusion  of  others  ;  and  conversely  they  are  altruistic  in  pro- 
portion as  they  tend  to  promote  the  well-being  of  others  to  the 
exclusion  of  self. 

From  this  position  it  has  been  consistently  inferred  that  self- 
interest  is  inimical  to  the  well-being  of  society.  The  natural 
effect  of  such  a  conclusion  is  to  create  an  aversion  to  all  indus- 
trial institutions  in  which  this  principle  is  recognized  and  to 
stimulate  the  demand  for  a  reconstruction  of  society  on  a  so- 
called  altruistic  basis.  This  reasoning  involves  a  misconception 
of  the  terms  egoism  and  altruism  and  their  logical  relation  to 
each  other.  It  is  a  radical  error  to  regard  altruism  as  anti- 
egoistic, — or  even  non-egoistic,  in  its  influence.  To  injure  or 
ignore  the  well-being  of  self  is  to  destroy  the  first  essential  con- 
dition for  promoting  the  welfare  of  others.  We  can  only  be 
helpful  to  others  in  proportion  as  we  are  well  provided  for  our- 
selves.1 The  poor,  the  weak,  and  the  inferior  are  always  a 
burden  rather  than  a  help  to  their  friends. 

Egoism  may  be  defined  as  relating  to  the  welfare  of  self  ;  and 
altruism  as  relating  to  the  welfare  of  self  and  others.  The  basis 
of  true  altruism  is  successful  egoism.  Altruism  differs  from 
egoism,  not  in  being  opposed,  or  even  indifferent  to,  the  interests 
of  self,  but  only  in  embracing  the  interests  of  others  besides  self-. 
Thus  all  real  altruism  is  highly  egoistic,  though  all  egoism  is  not 
altruistic.  All  conduct  may  be  called  relatively  altruistic  accord- 
ing as  it  benefits  more  than  one,  and  relatively  egoistic  as  it 
benefits  less  than  all.  It  is  a  mistake,  therefore,  to  conclude  that 
altruistic  conduct  in  society  can  be  increased  only  as  the  princi- 
ple of  self-interest  is  diminished. 

There  is,  moreover,  unconscious  and  conscious  altruism.     The 

1  "  The  acts  required  for  continued  self-preservation,  including  the  enjoyment 
of  benefits  achieved  by  such  acts,  are  the  first  requisites  to  universal  welfare. 
Unless  each  duly  cares  for  himself  his  care  for  all  others  is  ended  by  death  ;  and 
if  each  thus  dies  there  remains  no  other  to  be  cared  for.  This  permanent 
supremacy  of  egoism  over  altruism,  made  manifest  by  contemplating  existing 
life,  is  further  made  manifest  by  contemplating  life  in  the  course  of  evolution." 
— Spencer,  "  Data  of  Ethics,"  pp.  187,  188. 


THE  LAW  OF  SOCIAL  PROGRESS.  21 

former  is  altruistic  conduct  prompted  by  egoistic  motives  ;  the 
latter  is  that  inspired  by  altruistic  motives.  In  the  progress  of 
society  unconscious  altruism  precedes  and  tends  to  develop  con- 
scious altruism.  Much  the  larger  portion  of  the  altruistic  con- 
duct in  the  world  to-day  is  of  the  unconscious  class.  The  great 
improvements  in  manufacture  and  commerce  that  have  put  so 
many  luxuries  and  refinements  within  the  reach  of  the  average 
citizen  have,  for  the  most  part,  been  created  by  egoistic  motives. 
It  is  because  the  industrial  policy  of  the  employing  class  has  been 
dominated  too  much  by  the  idea  of  benefiting  self  to  the  exclu- 
sion of  others  that  it  has  received  so  many  disastrous  checks. 
We  shall  hereafter  see  that  industrial  depressions,  bankruptcies, 
enforced  idleness,  and  their  accompanying  evils,  are  the  economic 
penalty  for  ignoring  the  interests  of  others  in  the  efforts  to  bene- 
fit self.  Those  who  are  excluded  from  the  benefits  we  enjoy 
become  a  menace  to  our  well-being  and  a  hindrance  to  our  prog- 
ress ;  and  conversely,  the  more  completely  the  welfare  of  others 
becomes  identical  with  our  own  the  more  is  our  own  increased. 
Altruism,  then,  is  not  opposed  to  egoism  ;  it  is  simply  a  higher 
phase  of  it.  Obviously,  altruism — the  highest  form  of  ethical 
conduct — is  the  consequence  of  broadening  the  egoistic  activities 
of  the  material  and  intellectual  elements,  and  hence  is  necessa- 
rily last  in  the  order  of  development.  We  are  therefore  war- 
ranted in  concluding  that  the  progress  of  society  toward  greater 
complexity  of  organization,  in  which  the  necessity  of  physical 
effort  is  diminished,  intellectual  power  and  personal  freedom 
increased,  and  moral  character  elevated,  is  always  in  the  ascend- 
ing order  from  the  material  to  the  intellectual  and  moral ; — the 
material  being  the  basis,  the  intellectual  the  means,  and  the  moral 
qualities  the  result. 

What  then  are  the  influences  by  which  exclusive  egoism  is 
transformed  into  all  inclusive  altruism,  and  savagery  is  converted 
into  civilization  ?  To  answer  this  question  is  to  explain  the  cause 
of  social  progress  and  will  be  the  subject  of  the  next  chapter. 


CHAPTER   III. 
THE  CAUSE  OF  SOCIAL  PROGRESS. 

IT  is  not  enough  to  known  what  progress  is,  or  even  to  know 
the  law  of  progress  ;  but  the  cause  of  progress  must  also  be  under- 
stood before  a  true  system  of  social  philosophy  can  be  established. 

We  have  seen  :  (i)  that  social  progress  consists  in  changes  of 
man's  social  polity,  or  institutions,  and  not  in  his  physical  organ- 
ism ;  (2)  that  while  all  progress  is  change,  only  those  changes 
are  progressive  which  tend  to  further  social  differentiation  ;  (3) 
that  while  there  can  be  no  social  progress  without  differentiation, 
only  that  differentiation  is  progressive  which  results  in  new  inte- 
grations and  greater  complexity  of  social  relations. 

What  then  is  the  force  which  produces  the  changes  that  result 
in  integrating  differentiation  ?  If  we  examine  the  history  of 
social  institutions  from  their  simplest  beginnings,  or  trace  them 
from  their  most  complex  stages  back  to  the  earliest  times,  we 
shall  find  that  every  change  in  the  polity  of  society — whether  in- 
tellectual, political,  moral,  or  religious — has  been  brought  about 
by  man's  conscious  effort  to  adapt  social  institutions  to  his  own 
needs  and  desires.  Social  institutions  are  established  by  man 
exclusively  for  men.  It  may  be  said  that  the  changes  in  social 
institutions  are  the  work  of  the  human  intellect  ;  that,  where 
man's  social  wants  are  the  most  numerous  his  physical  and  intel- 
lectual activities  are  the  most  varied  and  all  phases  of  social 
institutions  are  the  most  highly  differentiated.  In  the  last  analysis 
the  proximate  cause  of  social  progress  is  human  wants. 

In  the  first  place,  it  will  be  observed  that  all  desires,  of  what- 
ever character,  are  simply  states  of  feeling,  the  distinguishing 
characteristics  of  which  are  pleasure  and  pain.  In  proportion  as 

22 


DESIRE    THE   CAUSE   OF  EFFORT.  23 

pleasure  exceeds  pain  in  human  experience  happiness  prevails 
and  life  becomes  attractive  and  desirable  ;  and  conversely,  as  pain 
exceeds  pleasure  misery  prevails  and  life  becomes  undesirable. 
These  antithetical  states  are  completely  represented  in  the  terms, 
want  and  satisfaction.  Want  is  pain  ;  satisfaction  is  pleasure  ; 
and  the  extent  to  which  the  latter  exceeds  the  former  is  the  true 
measure  of  happiness.  To  increase  the  proportion  of  pleasure 
to  pain,  therefore,  is  the  primary  purpose  of  all  human  effort  and 
the  immediate  cause  of  social  differentiation.  Although  all  effort 
is  exerted  for  the  gratification  of  some  desire,  there  are  many 
desires  that  fail  to  call  forth  sufficient  effort  for  their  satisfaction. 
Effectual  desires  are  those  which  incite  the  necessary  activity  for 
their  gratification  ;  those  which  fail  to  call  out  such  effort  are  in- 
effectual. Only  effectual  desires  cause  progress.  Why  are  some 
desires  effectual  and  others  ineffectual  ?  it  may  be  asked.  Upon 
what  principle  is  effort  expended  for  the  satisfaction  of  some 
wants  and  not  for  others  ?  A  moment's  consideration  will  show 
that  this  is  all  determined  by  the  relative  degree  of  pain  and 
pleasure  involved.  Hence,  the  gratification  of  any  given  desire 
must  finally  turn  upon  the  choice  between  a  relatively  painful 
want  and  a  relatively  painful  effort,  the  decision  always  being  in 
favor  of  the  minimum  pain.  If  this  be  true,  it  follows  that  human 
wants  are  not  only  the  cause  of  social  progress,  but  that  advance- 
ment toward  a  higher  plane  of  happiness  can  only  take  place  on 
the  egoistic  principle  of  obtaining  the  maximum  pleasure  for  the 
minimum  pain. 

It  thus  appears  that  self-interest  in  man  is  not  an  evil  element, 
as  we  have  been  taught  to  consider  it,  but  that  the  principle  of 
egoism  affords  the  basis  of,  and  inspiration  to,  social  develop- 
ment. Man  in  his  most  primitive  state  was  exclusively  egoistic 
in  his  desires  and  in  his  conduct.  Altruism  was  not  visible  in 
any  thing  that  he  did.  Having  no  social  or  physical  interest  in 
his  fellow-man,  there  was  no  more  economic  or  ethical  reason, 
why  he  should  not  steal  from,  or  even  kill  and  eat,  him,  than 
that  the  lion  should  not  devour  the  lamb. 

As  his  wants  became  more  numerous  the  efforts  to  satisfy  them 
became  more  burdensome,  and  the  contest  between  want  and 
effort  began.  The  want  must  remain  ungratified  or  a  means  of 
gratifying  it  less  painful  than  the  want  itself  must  be  devised.  This 


24  THE   ORIGIN  OF  EQUITY. 

could  only  be  accomplished  by  inventing  labor-saving  con- 
trivances ;  and  invention  is  exclusively  the  function  of  the  mind. 
The  greater  the  demand  for  this  mental  activity  the  more  rapidly 
are  the  intellectual  faculties  developed,  and  the  more  easily  are 
wants  gratified.  It  was  precisely  upon  this  principle  that  the 
crude  tomahawk,  bow  and  arrow,  and  canoe  were  first  employed, 
and  the  division  of  labor  became  a  necessity.  With  the  division 
and  specialization  of  labor,  exchange  of  products  became  indis- 
pensable to  the  gratification  of  wants,  and  some  degree  of  inter- 
course having  been  established,  a  beginning  of  confidence  became 
inevitable.  As  the  wants  of  men  increased,  and  they  became 
more  dependent  upon  each  other  for  the  means  of  satisfying 
them,  they  naturally  became  more  settled  and  social  in  their 
mode  of  life,  and  as  soon  as  the  crudest  form  of  association  be- 
came necessary,  altruistic  conduct  began.  The  fact  that  asso- 
ciation arose  from  self-interest  made  it  indispensable  that  the 
advantages  should  be  mutual  to  some  extent.  Thus  from  purely 
egoistic  motives  it  became  absolutely  necessary  that  the  efforts 
to  benefit  self  should  be  so  directed  as  to  confer  some  benefit 
upon  others. 

Through  this  closer  social  contact  wants  became  still  more 
varied  and  efforts  more  specialized  ;  intellectual  activity  in- 
creased and  individuality  gcew  more  pronounced.  When,  from 
these  influences,  exclusive  family  relations,  with  the  permanent 
care  of  offspring,  developed,  and  the  private  ownership  of  prop- 
erty became  customary,  it  was  obvious  that  one  of  two  things 
must  occur, — either  the  security  of  life  and  property  must  be 
increased,  or  these  complex  social  relations  must  be  abandoned  ; 
otherwise  the  danger  to  life  and  property  would  neutralize  all  the 
new  advantages.  Thus  a  certain  degree  of  morality  became  in- 
dispensable to  self-interest,  and  the  murder,  theft,  and  treachery 
which  a  more  simple  life  induced,  having  proved  injurious  to  all 
and  permanently  beneficial  to  none,  were  pronounced  capital 
offences.  The  more  closely  we  consider  history  in  this  light,  the 
more  clearly  it  appears  that  the  same  principle  applies  to  the 
whole  moral  code.  Just  as  fast  as  the  quality  of  an  action 
becomes  uniformly  recognized  it  is  designated  moral  or  immoral, 
and  passes  from  the  sphere  of  conscious  expediency  to  that  of 
moral  principle. 


DEVELOPMENT  OF  MORALITY.  2$ 

In  this  way  virtue  tends  to  perpetuate  itself,  while  vice  or 
immorality  tends  to  its  own  elimination.  The  object  of  intel- 
lectual activity  being  to  serve  the  desire  for  happiness,  it  is  neces- 
sarily employed  in  devising  means  for  eliminating  the  painful 
without  reducing  the  pleasurable  experiences,  and  it  is  only  as 
this  eliminating  process  takes  place  that  new  social  integrations 
become  permanent  and  the  best  results  of  progress  are  secured. 
This  principle  applies  to  all  phases  of  human  conduct.  All  the 
improvements  in  medicines,  ethics,  politics,  and  economics  are  the 
direct  results  of  this  eliminating  process. 

It  may  be  urged  that  the  altruism,  or  morality,  thus  evolved 
from  egoistic  motives,  is  only  of  the  unconscious  kind,  and  is  very 
different  from  the  conscious  altruistic  feeling  which  we  recognize 
in  the  highest  moral  characters.  If  we  pursue  the  enquiry  a  little 
further  we  shall  see  that  volitional  altruism  is  but  a  higher  phase 
of  the  unconscious  expedient.  The  same  principle  which  leads 
men  to  repeat  the  conduct  that  produces  beneficial  results,  also 
leads  them  to  have  a  common  interest  in,  admiration  for,  and 
sympathy  with,  those  identified  with  such  beneficial  efforts. 

It  should  be  remembered,  however,  that  social  progress  is  not 
a  simple,  direct  movement,  but  a  resultant  of  the  action  and 
reaction  of  a  variety  of  social  currents,  and  that  with  each  suc- 
cessive increase  in  the  social  complexity  the  influences  affecting 
their  differentiation  become  more  subtle  and  involved. 

The  increasingly  frequent  personal  intercourse  which  inevitably 
arises  from  more  complex  social  relations,  and  the  greater  identity 
of  interests,  naturally  tends  to  promote  a  greater  reciprocation  of 
sympathetic  feelings.  It  is  a  universal  principle  in  sociology  that 
the  more  frequently  we  repeat  acts  which  command  our  own  and 
others'  approval,  the  more  they  tend  to  become  habitual  and 
automatic  ;  and  in  proportion  as  any  conduct  tends  to  become  an 
unconscious  part  of  daily  life,  it  forms  a  fixed  element  of  social 
character.  Accordingly,  in  the  most  advanced  countries,  where 
the  wants  and  desires  of  the  people  are  the  most  numerous  *and 
their  industrial  and  social  relations  the  most  complex,  we  find  the 
greatest  degree  of  honor,  virtue,  integrity,  fair  dealing,  general 
honesty,  and  public  and  private  justice  ;  in  short,  the  highest 
phase  of  moral  conduct.  To  such  an  extent  is  this  true  that  con- 
tracts, sometimes  covering  millions  of  dollars,  are  daily  made 


26  NEW    WANTS    THE   CAUSE   OF  PROGRESS. 

between  parties  in  New  York,  London,  Paris,  etc.,  who  never  saw 
each  other.  Should  either  party  violate  such  obligation,  the 
law — which  expresses  the  moral  character  in  the  respective 
countries — would  enforce  its  fulfilment,  and  the  civilized  world 
even  sanctions  warfare  when  nations  violate  their  treaties  with 
each  other. 

The  transfer  of  conduct  from  a  basis  of  conscious  utility  to  that 
of  moral  principle  is  but  another  step  in  social  evolution  ;  the 
essential  difference  being  direct  and  indirect  experience. 
When  we  act  upon  the  abstract  principle  of  right  and  wrong 
we  are  simply  basing  our  conduct  upon  generalizations  drawn 
from  the  repeated  experiences  of  others.  We  accept  it  as  a 
dogmatic  principle  only  because  its  expediency  has  been  pre- 
viously demonstrated. 

Nor  is  this  all.  The  influences  which  are  thus  elevating  indi- 
vidual egoism  into  moral  principle  are  also  simultaneously  tending 
to  expand  and  intensify  sympathetic,  altruistic  feeling.  In  pro- 
portion as  the  influence  of  man's  egoism  becomes  indirect,  and 
that  of  his  altruism  direct,  he  becomes  more  sensitive  to  the 
feelings  of  others  and  less  absorbed  in  his  own  ;  so  that,  instead 
of  regarding  the  misery  of  others  with  indifference,  as  formerly, 
a  comparatively  slight  unhappiness  becomes  the  source  of  great 
pain  to  him,  and  often  the  incentive  to  his  highest  action.  Hence 
we  see  that,  whereas  man  could  once  kill  and  feed  upon  his 
fellows,  to-day  the  advanced  races  regard  injury  to  another  as 
equal  to  harm  inflicted  upon  themselves. 

Viewing  the  subject  in  all  its  phases,  we  see  that  in  every 
direction  the  increase  of  egoistic  wants  is  the  real  source  of  social 
progress.  It  develops  the  activity  of  the  intellect  ;  this  in  turn 
differentiates  the  social  environment ;  engrafts  virtue  into  char- 
acter ;  transforms  conscious  egoism  and  unconscious  altruism 
into  unconscious  egoism  and  conscious  altruism  ;  elevates  utility 
into  morality,  and  makes  moral  principle,  instead  of  individual 
interest,  the  basis  of  social  conduct.  Thus,  as  man's  intellect  is 
called  into  activity  by  the  differentiation  of  his  desires,  so  is  his 
moral  character  developed  by  the  differentiation  of  his  interests. 


CHAPTER  IV. 

THE  VERIFICATION  OF  THE  LAW  OF   SOCIAL 
PROGRESS. 

ACCORDING  to  the  theory  of  social  progress  presented  in  the 
preceding  chapters  the  development  of  man's  social  wants,  and 
the  consequent  increase  in  the  general  consumption  of  wealth,  is 
the  necessary  precursor  of  social,  intellectual,  and  moral  advance- 
ment. If  this  doctrine  is  correct  we  may  always  expect  to  find 
the  highest  state  of  civilization,  and  the  most  complete  social, 
political,  and  religious  freedom,  in  those  countries  where  the 
material  well-being  of  the  masses  is  the  most  marked  and  con- 
tinuous. And  conversely,  wherever  the  development  of  social 
wants  have  been  the  most  restricted,  we  may  equally  expect  to 
find  the  greatest  intellectual  and  moral  stagnation,  and  social, 
political,  and  religious  despotism. 

The  operation  of  this  law  is  as  universal  as  the  human  race. 
History  is  replete  with  the  evidence  that  social,  political,  and  re- 
ligious freedom  is  everywhere  large  or  limited,  the  intellectual 
and  moral  character  high  or  low,  in  proportion  as  the  general 
consumption  of  wealth  by  the  masses  is  great  or  small.  The  his- 
tory of  India  and  China,  for  instance,  reveals  to  us  peoples  whose 
simple  habits  of  life  induce  very  few  wants,  and  those  chiefly  of  a 
physical  character  which  are  easily  supplied.  Their  food  consists 
chiefly  of  rice,  ragi,  or  millet,  with  a  little  seasoning.  Their 
houses  are  mainly  fragile  huts  which  may  keep  out  the  rays  of 
the  sun,  but  seldom  afford  much  protection  against  wind  and 
rain.  The  furniture  and  clothing  of  the  common  people  are 
equally  simple  and  meagre,  being  confined  to  the  limited  uses 
which  a  rice-diet  and  a  ten-cent-a-day  social  life  make  necessary. 

27 


28  INDIA,    CHINA,    AND  EGYPT. 

Although  the  political  institutions  of  the  two  countries  are  in 
many  respects  essentially  different,  the  economic  and  social  con- 
ditions of  the  people  are  practically  the  same.  What  law  and 
caste  has  done  towards  stereotyping  the  industrial  and  social 
degradation  of  the  laboring  classes  in  Hindostan,  custom  has  just 
as  firmly  established  in  China.  The  natural  result  of  these  con- 
ditions is  the  arrest  of  material  and  social  progress  in  those 
countries.  If  we  can  accept  the  testimony  of  modern  travellers, 
the  people  of  India  and  China  are  in  substantially  the  same  state 
of  mental  and  moral  degradation  that  they  were  in  nearly  three 
thousand  years  ago.1 

In  Egypt  the  industrial  and  social  systems  were  very  similar 
to  those  in  India  and  China,  and  their  influence  upon  civilization 
was  substantially  the  same.  Dates  composed  the  staple  food  of 
the  common  people.  The  poverty  of  the  masses  in  ancient  Egypt 
may  be  inferred  from  the  fact  that  the  children  of  the  lower 
classes  went  entirely  naked,  and  that  to  bring  up  a  child  to 
maturity  did  not  cost  more  than  twenty  drachmas,  or  thirteen 
shillings  of  English  money,*  i.e.,  about  three  dollars  and  a  quarter. 
The  social  and  political  servitude  of  the  lower  classes  is  shown 
by  the  fact  that  they  were  prohibited  by  law  and  custom  from 
owning  land,  participating  in  public  affairs,  or  even  choosing  their 
own  occupation.* 

So  far  as  data  are  obtainable,  a  similar  set  of  facts  present 

1  ' '  The  nations  of  Europe  have  very  little  idea  of  the  actual  condition  of  the 
inhabitants  of  Hindostan.  They  are  more  wretchedly  poor  than  we  have  any 
notion  of." — "Transactions  of  Asiatic  Society,"  vol.  i.t  p.  482.  "From  the 
earliest  period  to  which  our  knowledge  of  India  extends,  an  immense  majority 
of  the  people,  pinched  by  the  most  galling  poverty,  .  .  .  crouching  before 
their  superiors  in  abject  submission,  and  only  fit  either  to  be  made  slaves  them- 
selves or  to  be  led  to  battle  to  make  slaves  of  others." — Buckle's  "  History  of 
Civilization,"  vol.  i.,  p.  53.  "  It  is  remarkable  how  little  the  people  of  Asiatic 
countries  have  to  do  in  the  revolution  of  their  governments.  They  are  never 
guided  by  any  great  and  common  impulse  of  feeling,  and  take  no  part  in  events 
the  most  interesting  and  important  to  their  country  and  their  own  posterity." 
— "  Journal  of  Asiatic  Society,"  vol.  i.,  p.  250.  See  also  Alison's  "  History  of 
Europe,"  vol.  x.,  pp.  419,  420. 

'  Buckle's  "  History  of  Civilization,"  vol.  i.,  p.  63. 

1  "  If  any  artisan  meddled  with  political  affairs,  or  engaged  in  any  other  em- 
ployment than  the  one  in  which  he  had  been  brought  up,  a  severe  punishment 
was  inflicted  upon  him." — Wilkinson's  "  Ancient  Egyptians,"  vol.  ii.,  pp.  8,  9. 


GREECE  AND  ROME.  2Q 

themselves  in  the  much-lauded  early  civilization  of  South  Ameri- 
ca. The  leading  features  of  the  industrial  and  social  system  in 
ancient  Mexico  and  Peru  were  similar  to  those  of  China,  India, 
and  Egypt  ;  and  consequently  their  influences  upon  human 
progress  were  substantially  the  same.  What  rice  was  to  the  in- 
habitants of  India  and  China,  and  dates  to  those  of  Egypt, 
maize  and  bananas  were  to  the  people  of  Mexico  and  Peru. 
Here  too,  poverty,  ignorance,  and  servitude,  with  all  their 
attendant  evils,  were  the  direful  lot  of  the  laboring  classes.1 

The  history  of  ancient  Rome  and  Greece  presents  a  similar 
picture,  although  the  setting  is  somewhat  different.  These  two 
countries  differed  from  each  other  in  some  respects  ;  their  cli- 
mate, religion,  political  institutions  and  literature  were  unlike 
those  of  India,  China,  Egypt,  and  early  America  in  many  im- 
portant particulars  ;  but  in  one  fundamental  respect  they  were 
all  substantially  the  same — namely,  the  material  and  social  con- 
dition of  the  people. 

The  great  mass  of  the  people  in  Greece  and  Rome  were  miser- 
ably poor  and  the  very  few  were  enormously  rich.  Despite  the 
progress  of  art,  philosophy,  and  jurisprudence,  the  social  con- 
tempt in  which  the  industrial  classes  were  held  by  their  superiors 
was  as  intense  as  that  exhibited  by  the  ruling  classes  of  Asia, 
Africa,  and  America. 

Slavery  was  so  thoroughly  rooted  in  the  social  system  of 
Greece  that  it  was  not  only  sustained  by  those  who  had  a  mer- 
cenary interest  in  the  traffic,  but  the  philosophers — before  whose 
wisdom  we  of  the  nineteenth  century  are  asked  to  bow — defended 
it  as  being  in  accordance  with  natural  law.  Xenophon,  a  disciple 
of  Socrates,  in  expressing  his  contempt  for  the  laboring  classes, 
declared  :  "  The  manual  arts  are  infamous  and  unworthy  of  a 
citizen."  Even  Plato  introduced  slaves  into  his  ideal  republic. 
Nor  did  the  scientific  mind  of  Aristotle  emancipate  him  from  the 
iniquitous  idea.  Speaking  of  laborers,  he  says  :  "  These  indi- 

1  "  They  (the  masses)  had  nothing  that  deserved  to  be  called  property.  They 
could  follow  no  craft,  could  arrange  no  labor,  no  amusement,  but  such  as  was 
specially  provided  by  law.  They  could  not  change  their  residence  or  dress 
without  a  license  from  the  government.  They  could  not  even  exercise  the  free- 
dom which  is  conceded  to  the  most  abject  in  other  countries — that  of  selecting 
their  own  wives." — Prescott's  "History  of  Peru,"  vol.  i.,  p.  159.  See  also 
Draper's  "  Intellectual  Development  of  Europe,"  p.  461. 


3<D  EXTENT  OF  SLAVERY   UNDER  ROME. 

viduals  are  destined  by  nature  to  slavery  because  there  is  nothing 
better  for  them  to  obey.  It  is  clear,  then,  that  some  men  are  free 
by  nature  and  others  are  slaves  ;  and  in  the  case  of  the  latter,  the 
lot  of  slavery  is  both  advantageous  and  just." 

The  inability  of  the  learned  and  high-minded  philosophers  of 
Greece,  who  were  too  pure  to  participate  in  politics  or  trade,  to 
conceive  of  the  possibility  of  a  social  state  without  slavery  attests 
conclusively  how  permanently  and  universally  the  social  degrada- 
tion of  the  common  people  must  have  been  established. 

Under  Rome  we  find  the  same  arrogant  contempt  for  industry 
among  the  rich,  and  the  same  general  ignorance  among  the 
masses.  According  to  Gibbon,  "  slaves  were  so  numerous  in 
Rome  that  the  authorities  dared  not  permit  them  to  wear  a  pecul- 
iar habit  for  fear  that  they  might  become  dangerous  by  discover- 
ing their  own  numbers  and  strength."  Athenaeus  boldly  asserts 
that  he  knew  very  many  Romans  who  possessed,  not  for  use  but 
ostentation,  ten  and  even  twenty  thousand  slaves.1 

We  are  told  that  "  in  Italy  itself  the  consumption  of  life  was  so 
great  that  there  was  no  possibility  of  the  slaves  by  birth  meeting 
the  requirement,  and  supply  of  others  by  war  became  necessary." 5 

It  will  thus  be  seen  that  the  chief  social  characteristic  of  ancient 
civilizations  was  the  opulence,  arrogance,  and  despotism  of  rulers, 
and  general  poverty,  ignorance,  and  servitude  among  the  masses. 
Consequently  all  the  forces  that  naturally  tend  to  promote  civili- 
zation were  limited  to  a  small  exclusive  class,  while  those  influ- 
ences which  tend  to  retard  progress  were  in  constant  and  general 
operation  among  the  great  mass  of  the  people.  Although  wealth, 
learning,  and  culture  are  the  most  powerful  agents  in  promoting 
human  progress,  it  should  always  be  remembered  that  the  potency 
of  their  influence  depends  entirely  upon  the  extent  and  constancy 
of  their  operation.  It  is  not  surprising  therefore  that  the  learning 
and  philosophy  of  Greece  and  Rome,  like  the  wealth  of  Asia  and 
Africa,  tended  to  increase  the  power  of  the  rulers  rather  than  to 
develop  the  social  character  of  the  common  people. 

It  is  true  that  modern  civilization  owes  more  to  the  learning  and 
philosophy  of  Athens,  and  the  jurisprudence  of  Rome,  than  it 

1  Gibbon's  "  Decline  and  Fall  of  the  Roman  Empire,"  vol.  i.,  p.  52  ;  note,  59  ; 
ibid.,  vol.  i.,  p.  51. 

8  Draper's  "  Intellectual  Development  of  Europe,"  p.  184. 


EFFECT  OF  ANCIENT  PHILOSOPHY.  31 

does  to  the  wealth  and  art  of  India  and  Egypt  ;  but  this  is  not 
due  so  much  to  the  superior  influence  which  they  exercised  in 
their  own  time  as  to  the  fact  that  Greek  philosophy  and  Roman 
law  were  committed  to  parchment,  and  thereby  preserved  until  a 
sufficiently  large  portion  of  the  race  reached  the  advancement 
necessary  to  appropriate  it.  And  long  it  had  to  wait  for  that  period 
to  arrive  ;  it  was  seventeen  centuries  after  the  time  of  Socrates, 
Plato,  and  Aristotle  that  Greek  literature  began  to  exercise  any 
influence  upon  human  progress  ;  indeed,  it  was  not  until  a  thous- 
and years  after  the  government  of  Greece  and  Rome  had  passed 
away,  and  the  slavery  they  had  bequeathed  to  the  race  over- 
thrown, that — through  the  influence  developed  by  the  Free  Cities 
of  Europe — the  laboring  classes  for  the  first  time  became  active 
social  factors,  and  a  broader  field  prepared  in  which  the  seed 
of  Athenian  philosophy  could  germinate.1 

Therefore,  so  far  as  advancing  the  civilization — improving  the 
social  condition  of  the  masses — of  its  own  period  is  concerned, 
the  philosophy  of  Greece  and  Rome  did  no  more  than  the  pyra- 
mids of  Egypt,  or  the  palaces  of  Peru. 

It  was  because  the  refining  elements  of  these  civilizations  were 
not  rooted  in  the  industrial  and  social  character  of  the  common 
people,  but  represented  only  the  glitter  of  a  small  class  sustained 
by  the  power  of  the  army,  that  their  decay  and  fall  was  inevitable. 
When  circumstances  arose  which  forced  them  to  contend  with 
foreign  enemies  and  civil  strife,  their  seeming  strength  vanished 
and  their  real  weakness  was  revealed.  The  defeat  of  the  army 
was  the  fall  of  their  power  ;  with  the  military  support  taken 
from  under  the  government  nothing  remained  to  prevent  it  from 

1  Draper  thinks  the  revival  of  Greek  may  be  dated  from  the  close  of  the  four- 
teenth century,  at  which  time  Chrysoloras  taught  it  in  Italy.  Although  this  iso- 
lated spark  appeared  in  1395,  and  some  Greek  manuscripts  (including  those  of 
Plato  and  Pindar)  were  brought  into  Italy  a  few  years  later,  it  cannot  be  said  that 
there  was  any  perceptible  restoration  of,  and  much  less  any  social  influence  from, 
Greek  literature  until  after  the  capture  of  Constantinople  by  the  Turks  in  1453. 
This,  it  will  be  remembered,  was  fully  a  century  and  a  half  after  the  Free  Cities 
had  obtained  the  material  prosperity  and  political  freedom  which  made  them 
leading  factors  in  the  social  and  industrial  Irfe  of  Europe  ;  more  than  a  century 
after  the  discovery  of  gunpowder  ;  nineteen  years  after  the  insurrection  of  Wat 
Tyler  in  England  ;  thirty-seven  years  after  the  revolt  of  the  Hussites  in  Bohemia  ; 
and  eight  years  after  the  discovery  of  the  art  of  printing. 


32  WHY  ROME  FELL. 

falling  to  the  level  of  the  real  character  of  the  people — which  was 
barbarism. 

It  was  a  mistake  to  assume,  as  Draper  and  others  have  done, 
that  the  decay  of  these  civilizations  was  the  natural  result  of  social 
ripeness  and  old  age.  Such  was  far  from  being  the  case  ;  they  all 
died  (socially  speaking)  in  their  very  babyhood.  Not  one  of 
them  arose  above  the  plane  of  chattel  slavery  and  hand  labor  ; 
they  did  not  even  reach  the  point  of  having  chimneys,  or  glass 
windows,  in  the  houses  of  their  most  favored  classes,1  — and  cer- 
tainly much  intellectual  and  moral  light  cannot  be  expected  to 
enter  the  minds  and  characters  of  a  people  when  sunlight  never 
enter  their  dwellings. 

The  commonly  accepted  notion  that  the  overthrow  of  these 
ancient  governments  was  the  destruction  of  superior  civilizations 
is  erroneous.  When  Rome  conquered  Greece  and  subjugated  all 
Europe,  as  well  as  Egypt  and  Asia  Minor, — or  when  the  barbari- 
ans sacked  Rome, — they  did  not  destroy  high  civilizations,  but 
rather  reduced  the  political  institutions  of  the  time  to  the  level  of 
the  general  industrial  and  social  character  they  had  created.  Had 
the  material  conditions  and  social  character  of  the  Roman  people 
in  the  fifth  century  been  equal  to  that  of  the  burgesses  of  the  four- 
teenth, neither  the  defeat  of  the  army  nor  the  fall  of  the  empire 
could  have  reduced  them  to  barbarism  ;  but  slaves — the  chief 
social  product  of  Rome — were  good  material  for  barbarian  rule. 
Human  progress  was  not  arrested  because  Rome  fell,  but  Rome 
fell  because  human  progress  had  been  arrested. 

1  Chimneys  and  glass  windows  did  not  come  into  use  until  the  middle  of  the 
fourteenth  century. 


CHAPTER  V. 

THE  RISE  AND  SOCIAL  POWER  OF  THE  FREE 
CITIES. 

IF  we  pass  from  the  ancient  to  the  modern  world  we  shall  find 
that,  so  far  as  the  same  causes  have  been  in  operation,  the  same 
social  effects  have  been  produced  ;  namely,  that  intellectual  and 
moral  development,  and  civil  and  religious  liberty,  have  always 
followed  the  line  of  the  material  prosperity  of  the  masses,  and 
vice  versa. 

The  first  five  centuries  of  the  history  of  Europe  after  the  fall 
of  the  Western  Empire  compose  the  midnight  darkness  of  social 
chaos.  Indeed,  the  only  approach  to  orderly  government  within 
that  period  was  during  the  reign  of  Charlemagne.  After  his  death 
the  empire  soon  resolved  itself  into  the  elements  from  which  it 
was  constructed,  and  all  law,  authority,  and  regular  government 
again  disappeared. 

After  protracted  but  futile  struggles  for  political  and  territorial 
supremacy,  powerful  chiefs  began  to  settle  upon  their  domains 
with  their  retainers,  and  there  assumed  all  the  functions  of 
military  chiefs,  civil  magistrates,  and  political  sovereigns  over 
their  vassals.  Thus,  before  the  close  of  the  ninth  century,  the 
feudal  system — which  during  the  tenth,  eleventh,  and  twelfth 
centuries  governed  all  Europe — slowly  emerged  from  barbarism. 

Feudalism  sustained  the  same  relation  to  barbarism  that  bar- 
barism did  to  Romanism. — not  that  it  was  superior  to  it,  but  that 
it  was  the  natural  outcome  of  it.  Both  barbarism  and  feudalism 
were  simply  the  means  of  adapting  the  external  machinery  of 
society  to  the  internal  character  of  the  people.  As  the  vast  em- 
pire of  Rome  became  reduced  to  wandering  tribes  and  petty 
3  33 


34  FIRST  STEP    TOWARDS  FREEDOM. 

kingdoms  because  it  had  failed  to  develop  the  industrial  and 
social  character  of  the  masses,  so,  for  the  same  reason,  in  the 
tenth  century  authority  was  transferred  from  petty  kings  to  feudal 
lords;  society  was  reduced  to  its  lowest  terms,  and  political  rights 
and  social  privileges  were  absorbed  by  industrial  conditions, — 
he  who  offered  the  means  of  a  living  commanding  complete 
political,  military,  and  social  allegiance. 

Under  this  regime  all  who  were  not  noble  were  servile  ;  fhe 
extent  of  servitude  was  in  accordance  with  the  degree  of  poverty; 
the  very  poor  were  slaves.  "  Artisans  and  free  husbandmen,"  says 
Hallam,  "  were  often  compelled  to  exchange  their  liberty  for  bread. 
In  seasons  also  of  famine,  and  they  were  not  infrequent,  many 
freemen  sold  themselves  into  slavery  .  .  .  others  became 
slaves,  as  the  more  fortunate  men  became  vassals,  to  a  powerful 
lord  for  the  sake  of  his  protection."  ' 

Guizot  observed  :  "  No  sooner  was  society  a  little  settled  under 
the  feudal  system  than  the  proprietors  of  fiefs  began  to  feel  new 
wants,  and  to  acquire  a  certain  degree  of  taste  for  improvement 
and  melioration  ;  this  gave  rise  to  some  little  commerce  and 
industry  in  the  towns  of  their  domains  ;  wealth  and  population 
increased  within  them — slowly  for  certain,  but  still  they  in- 
creased."2 

With  the  concentration  of  the  serfs  in  the  towns  the  seed  of 
social  development  was  planted.  The  influence  of  the  in- 
dustrial, social,  and  religious  intercourse  thus  created,  though 
meagre  and  crude,  perceptibly  affected  the  wants  and  character 
of  the  laborers  and  taught  them  to  produce,  and  also  to  consume, 
wealth. 

This  first  real  step  towards  progress  and  freedom  became  too 
pronounced  to  be  mistaken  by  the  middle  of  the  eleventh  cen- 
tury, and  finally  grew  too  powerful  to  be  arrested  until  it  had 
overthrown  the  feudal  system  and  laid  the  foundation  of  a  higher 
civilization.  As  the  towns  increased  more  rapidly  in  population 
and  prosperity,  they  naturally  developed  a  spirit  of  independence. 
This  tended  to  excite  the  jealousy  of  the  barons,  who  regarded 
the  burghers  as  serfs  having  no  rights  that  they  were  bound  to 
respect,  and  they  therefore  increased  their  exactions  and  en- 

1  "  Middle  Ages,"  vol.  i.,  pp.  121,  122. 

*  "  History  of  Civilization,"  p.  157  ;  also  ibid.,  p.  101. 


LETTING    THE    TOWNS  IN  FEE-FARM.  35 

deavored  to  rob  and  plunder  them  at  every  opportunity.1  "  The 
exactions,"  says  Guizot,  "of  the  proprietors  of  fiefs  upon  the 
burgesses  were  redoubled  at  the  end  of  the  tenth  century.  When- 
ever the  lord  of  the  domain  by  which  the  city  was  girt  felt  a  de- 
sire to  increase  his  wealth  he  gratified  his  avarice  at  the  expense 
of  the  citizens  .  .  .  merchants  on  returning  from  their  trading 
rounds  could  not  with  safety  return  to  the  city.  Every  avenue 
Was  taken  possession  of  by  the  lord  of  the  domain  and  his 
vassals."  Man  will  seldom  take  much  risk  to  obtain  advantages 
he  has  never  possessed,  but  he  will  risk  every  thing,  often  against 
great  odds,  to  defend  and  sustain  those  he  has  already  enjoyed. 
So  the  burghers,  having  had  a  taste  of  wealth  and  social  freedom, 
slight  indeed  though  it  was,  were  ready  to  risk  their  all  to  retain 
these  benefits. 

Despite  the  constant  efforts  of  the  lords  to  check  the  power  and 
progress  of  the  burghers  by  greater  exactions  and  open  rob- 
bery, we  are  told  that  :  "  The  towns  became  continually  richer 
.  .  .  the  consciousness  that  they  could  not  be  individually 
despoiled  of  their  possessions,  like  the  villains  of  the  country 
around,  inspired  an  industry  and  perseverance  which  all  the 
rapacity  of  the  Norman  kings  and  barons  was  unable  to 
overcome." " 

The  opposition  of  the  burghers  to  the  harassing  policy  of  the 
barons  at  length  became  so  strong  that  the  barons  were  com- 
pelled to  abandon  the  effort  to  exact  tribute  from  each  individual 
burgher  at  will,  and  agreed  to  accept  a  specific  amount  from  the 
whole  town,  to  be  paid  as  a  yearly  rent.  To  secure  this  rent  the 
baron  surrendered  every  other  claim  which  he  might  have,  either 
upon  the  town  or  its  individual  inhabitants.  "  The  town  was 
then  said  to  be  affirmed,  or  let  in  fee-farm,  to  the  burgesses  and 
their  successors  forever."  '  This  rent,  when  once  fixed,  was  per- 
petual, and  could  not  be  increased  by  the  lord, — however  popu- 
lous or  rich  the  town  might  become, — nor  could  any  new  tax  be 
imposed  upon  it  without  the  consent  of  the  burghers.  This  was 
really  the  first  victory  for  liberty  ever  known  by,  and  for,  the 
laboring  classes. 

1  "  History  of  Civilization,"  p.  158  ;  Hallam's  "  Middle  Ages,"  vol.  i.,  pp. 
365,  366,  and  Wade's  "  History  of  the  Working  Classes,"  p.  9. 

9  Hallam's  "  Middle  Ages,"  vol.  ii.,  p.  78. 

3  Hallam's  "  Middle  Ages,"  vol.  i.,  p.  78. 


36  REVOLT  OF   THE    TOWNS. 

But,  instead  of  being  the  end,  this  was  only  the  beginning  of 
the  struggle,  for  what  the  lords  could  no  longer  take  by  tallage 
they  endeavored  to  obtain  by  force.1  In  order,  therefore,  to 
maintain  their  existence  and  the  little  freedom  they  had  ac- 
quired, the  towns  were  forced  into  open  hostility  to  the  barons. 
To  sustain  themselves  in  this  struggle  we  are  told  that  :  "  Every 
citizen  was  bound  by  oath  to  stand  by  the  common  cause  against 
all  aggressors,  and  this  obligation  was  abundantly  fulfilled.  In 
order  to  swell  their  numbers,  it  became  the  practice  to  admit  all 
who  came  to  reside  within  their  walls  to  the  rights  of  burgher- 
ship,  even  though  they  were  villains,  appurtenant  to  the  soil  of  a 
master,  from  whom  they  had  escaped."  a  Thus  the  towns  not 
only  protected  the  prosperity  and  promoted  the  progress  of 
those  who  lived  within  them,  but  they  offered  protection  and 
freedom  to  all  who  would  flee  from  the  clutches  of  the  feudal 
masters.  Guizot  assures  us  that  :  "  It  was  not  merely  the  lower 
orders,  such  as  serfs,  villains,  and  so  on,  that  sought  this  protec- 
tion, but  frequently  men  of  considerable  rank  and  wealth,  who 
might  chance  to  be  proscribed.  .  .  .  Refugees  of  this  sort," 
he  adds,  "had,  in  my  opinion,  a  considerable  influence  upon  the 
progress  of  the  cities  ;  they  introduced  into  them,  besides  their 
wealth,  elements  of  a  population  superior  to  the  great  mass  of 
the  inhabitants."  s 

By  these  means,  together  with  the  industrial  and  social  in- 
fluences before  referred  to,  the  towns  continued  to  grow  in 
wealth,  population,  and  power,  and  before  the  close  of  the 
eleventh  century  they  were  in  general  rebellion  against  the 
barons.4  Although  the  revolt  was  local,  and  spontaneous  in 
its  origin,  it  was  universal  and  simultaneous  in  its  movement. 
The  same  general  causes  were  everywhere  in  operation,  and 
consequently  the  same  general  effect  was  produced.5 

"  Wealth  of  Nations/'  Book  III.,  chap,  iii.,  p.  306. 

Hallam's  "Middle  Ages,"  vol.  i.,  p.  170. 

"  History  of  Civilization,"  p.  157^ 

Guizot's  "  History  of  Civilization,"  p.  161. 

"  The  situation  of  all  the  towns  being  nearly  the  same,  they  were  all  liable 
to  the  same  danger  ;  a  prey  to  the  same  disaster.  Having  acquired  similar 
means  of  resistance  and  defence,  they  made  use  of  those  means  at  nearly  the 
same  time." — Guizot's  "  History  of  Civilization,"  p.  161. 


ESTABLISHMENT  OF  FREE   CITIES.  37 

When  the  open  rupture  between  the  towns  and  their  lords  took 
place,  the  king,  though  not  necessarily  an  active  partisan,  was 
always  a  deeply  interested  party.  Adam  Smith  says  :  "  The 
burghers  naturally  hated  and  feared  the  lords  ;  the  king  hated 
and  feared  them  too  ;  but,  though  perhaps  he  might  despise,  he 
had  no  reason  to  either  hate  or  fear,  the  burghers.  Mutual  inter- 
est, therefore,  disposed  them  to  support  the  king,  and  the  king  to 
support  them  against  the  lords.  They  were  the  enemies  of  his 
enemies,  and  it  was  his  interest  to  render  them  as  secure  and  in- 
dependent of  those  enemies  as  he  could  "  '  ;  accordingly,  in  their 
struggles  with  the  barons,  the  towns  frequently  called  upon  the 
king  for  aid  and  support  in  protecting  the  rights  and  privileges 
which  the  lords  had  previously  sworn  to  grant  them. 

This  appeal  was  generally  responded  to,  at  least  so  far  as  the 
king  could  know  that  his  own  power  and  interest  would  be  pro- 
moted thereby.  By  this  means,  in  the  eleventh  century,  the  towns 
began  to  obtain  charters  giving  them  special  commercial  privi- 
leges,2 and  early  in  the  twelfth  century  they  obtained  charters 
which  secured  to  them,  besides  commercial  privileges,  the  right 
of  self-government.*  By  these  charters  the  towns  were  practically 
transformed  into  little  republics.  They  were  better  able  than 
ever  before  to  effectually  offer  an  asylum  to  overpowered  lords, 
and  freedom  to  the  enslaved  and  degraded  serfs  who  might  take 
refuge  within  their  walls.  These  Free  Cities,  therefore,  natu- 

1  "Wealth  of  Nations,"  Book  III.,  pp.  306,  307. 

2  "From  the  time  of  William  Rufus  "  (1087  to  noo),  says  Hallam,  "there 
was  no  reign  in  which  charters  were  not  granted  to  different  towns,  of  exemp- 
tions from  tolls  on   rivers   and   at  markets,   those  lighter   manacles   of  feudal 
tyranny  ;  or  of  commercial  franchises  ;  or  of  immunity  from  the  ordinary  juris- 
diction ;  or,  lastly,  of  internal  self-regulation." — "  Middle  Ages,"  vol.  ii.,  p.  78. 

3  According  to  Hallam,  the  city  of  Leon  received  its  municipal  charter  from 
Alfonso  V.,  of  Spain,  as  early  as  1020.     The  city  of  London,  from  Henry  I., 
in  HOI,  and  those  of  Noyon,  St.  Quenton,  Laon<  and  Amiens,  by  Louis  VI.,  of 
France,  about  mo.     "The  privileges  conferred  by  these  charters,"  says  this 
writer,    ' '  were   surprisingly    extensive.     .     .     .     They    (the   burgesses)   were 
made  capable  of  possessing  common  property,  and  authorized  to  use  a  common 
seal  as  the  symbol  of  their  incorporation." — "  Middle  Ages,"  vol.  i.,  pp.  166— 
169.      "It  is  certain,"  says  the  same  writer  (vol.  i.,  p.   190),  "  that  before  the 
death  of  Henry  V.,  in   1125,  almost  all  the  cities  of  Lombardy,  and  many  of 
those  of  Tuscany,  were  accustomed  to  elect  their  own  magistrates,  and  to  act  as 
independent  communities  in  waging  war  and  in  domestic  government." 


38  SOCIAL   POWER    OF    THE  FREE    CITIES. 

rally  attracted  to  themselves  the  most  industrious  and  energetic 
portion  of  the  population,  and  consequently,  during  the  twelfth 
and  thirteenth  centuries,  became  the  centres  of  wealth,  population, 
and  progress. 

In  1164,  the  Lombard  cities  formed  a  league  to  defend  their 
rights  and  liberties  against  the  attacks  of  Frederic  Barbarossa,  who 
two  years  before,  attacked  and  pillaged  the  city  of  Milan,  the  most 
populous  and  powerful  of  their  number.  The  war  into  which  they 
entered  lasted  thirteen  years,  and  ended  with  the  famous  "  Peace 
of  Constance  "  (i  183),  which,  we  are  told,  "  established  the  Lom- 
bard republics  in  real  independence."1  By  1188  the  cities  of 
Spain  acquired  the  right  of  representation  in  the  national  legisla- 
ture. In  1214  Magna  Charta  declared  the  old  and  new  privileges 
of  English  cities  to  be  inviolable  (this  was  reconfirmed  thirty-two 
times  before  the  middle  of  the  next  century),  and  in  1265  the 
burghers,  or  inhabitants  of  the  free  cities,  obtained  representation 
in  Parliament. 

About  the  middle  of  the  thirteenth  century,  the  Free  Cities  of 
Germany,  in  order  to  protect  their  rights  and  property  against 
the  rapacity  of  the  barons,  formed  the  famous  Hanseatic  League 
(which  was  a  confederacy  of  eighty  of  the  most  powerful  cities), 
and  sixty  other  cities  banded  themselves  together  as  the  League 
of  the  Rhine. 2 

It  will  thus  be  observed  that,  through  their  material  or  indus- 
trial prosperity,  social  intercourse,  and  political  activity,  the  Free 
Cities  gave  birth  to  human  freedom  and  became  the  nurseries  of 
modern  progress  3  ;  and  that  in  those  countries"  where  the  Free 
Cities  never  existed,  such  as  China,  Hindostan,  and  Egypt,  civili- 
zation has  been  most  stationary. 

1  Hallam's  "  Middle  Ages,"  vol.  i.,  p.  196. 

s  Ibid.,  p.  367  ;  cf.  ibid.,  vol.  ii.,  p.  271. 

3  ' '  Order  and  good  government,  and  along  with  them  the  liberty  and  security  of 
individuals,  were,  in  this  manner,  established  in  cities,  at  a  time  when  the  occu- 
piers of  land  in  the  country  were  exposed  to  every  sort  of  violence."-^Smith's 
"  Wealth  of  Nations,"  Book  III.,  chapter  iii.,  p.  308. 


CHAPTER  VI. 

THE  FALL  OF  THE  FREE  CITIES  AND  ITS    EFFECT 
UPON  SOCIAL  PROGRESS. 

IT  is  not  necessary  to  our  present  purpose  to  discuss  the  causes 
which  led  to  the  fall  of  the  Free  Cities,  but  merely  to  indicate,  by 
a  brief  notice,  the  general  relation  which  they  sustain  to  social 
progress.  The  important  fact  everywhere  observable  is,  that 
although  the  fall  of  the  Free  Cities  in  different  countries  was  not 
simultaneous,  nor  the  causes  identical,  the  bad  effect  upon  the 
material  prosperity  of  the  people  and  the  progress  of  social, 
political,  and  religious  freedom  was  substantially  the  same. 

In  Spain  charters  were  granted  to  the  towns  early  in  the 
eleventh  century  (1020),'  and  before  the  close  of  the  twelfth  they 
were  admitted  to  representation  in  the  Cortes.  The  peculiar 
feature  of  the  history  of  Spain  during  the  Middle  Ages  is  the 
fact  that  for  nearly  eight  centuries  she  was  engaged  in  religious 
war.  The  early  charters  of  Spain,  unlike  those  of  France,  Eng- 
land, and  Germany,  were  granted  more  for  the  purpose  of 
inducing  the  burghers  to  defend  the  country  against  the  Moors, 
than  to  enable  them  to  protect  themselves  against  the  exactions 
of  the  barons.'  This  perpetual  religious  war  served  to  keep  the 
importance  of  the  clergy  and  the  king  constantly  before  the 

1  "  The  earliest  instance  of  the  erection  of  a  community  is  (in  Spain)  in  1020, 
when  Alfonso  V.,  in  the  cortes  at  Leon,  established  the  privileges  of  that  city, 
with    a    regular  code  of   laws   by  which  its  magistrates  should  be  governed." 
— Hallam's  "  Middle  Ages,"  vol.  i.,  p.  303. 

2  "  Instead  of  purchasing  their  immunities,  and  almost  their  personal  freedom, 
at  the  hands  of  a  master,  the  burgesses  of  Castilian  towns  were  invested  with 
civil  rights  and  extensive  property  on  the  more  liberal  condition  of  protecting 
their  country." — Hallam's  "  Middle  Ages,"  vol.  i.,  p.  303. 

39 


40  THE  SPANISH  CITIES. 

people,  the  former  to  teach  the  true  faith,  the  latter  to  extirpate  the 
heretics.  The  Christians  being  more  devoted  to  the  killing  of 
heretics  than  to  the  production  of  wealth,  manufacturing  and 
commercial  industries  were,  for  the  most  part,  carried  on  by  the 
Mohammedans.1  Therefore,  when  the  Moors  were  driven  out  of 
Spain,  and  their  industrial  centres  deserted,  the  last  prop  to  her 
material  prosperity  was  destroyed.  Buckle  pointedly  observes 2 : 
"  There  was  no  one  to  fill  their  place  ;  arts  and  manufactures 
either  degenerated  or  were  entirely  lost." 

The  city  of  Seville,  which  before  the  expulsion  of  the  Moham- 
medans contained  sixteen  thousand  looms  and  gave  employment 
to  thirty  out  of  fifty  persons,  only  employed  three  hundred  looms 
after  that  event.  During  the  same  period  the  fifty  woollen- 
factories  of  Toledo  were  reduced  to  thirteen,  and  her  silk  trade, 
which  had  given  employment  to  over  thirty-eight  thousand 
persons,  was  entirely  destroyed. 

The  poverty  and  wretchedness  which  followed  this  decay  of 
the  Christian  and  the  violent  overthrow  of  the  Moorish  Cities  of 
Spain  are  almost  indescribable,3  and  with  this  industrial  degener- 
acy the  social  progress  of  the  burghers  was  soon  arrested. 

By  the  close  of  the  fifteenth  century  their  representation  in  the 
Cortes,  and  with  it  their  industrial  and  social  freedom,  was  prac- 
tically extinct.4  From  this  time  Spain  rapidly  declined,  and  soon 
fell  from  the  position  of  one  of  the  strongest  to  that  of  one  of 
the  weakest  nations  in  Europe — a  fall  she  has  never  since  re- 
covered. 

In  Italy  the  Free  Cities  fell  from  a  different  set  of  causes,  but 
the  effect  of  their  fall  upon  progress  was  essentially  the  same  in 
kind,  if  not  in  degree.  As  already  stated,  the  Lombard  Cities 
began  to  acquire  wealth  and  freedom  in  the  eleventh  century, 
and  before  the  close  of  the  twelfth  they  became  recognized, 
independent  republics.  Upon  the  same  principle  that  the  in- 
crease of  wealth  which  precedes  the  development  of  wants  leads 

1  Buckle's  "  History  of  Civilization,"  vol.  ii.,  p.  52.  2  Ibid. 

3  Mahon's  "  Spain  under  Charles  II.,"  pp.  138-140. 

4  "  At  the  cortes  of  Burgos,  in  1315,  we  find  one  hundred  and  ninety-two 
representatives  from  more  than  ninety  towns.    ...    by  the  year    1480   only 
seventeen  cities  retained  the  privilege  of  representation." — Hallam's  "  History 
of  the  Middle  Ages,"  vol.  i.,  p.  314. 


THE  ITALIAN  CITIES.  4! 

to  waste,  the  increase  of  freedom  and  power  that  precede  the 
development  of  social  character  necessary  to  their  wise  use,  nat- 
urally lead  to  maladministration,  and  tend  to  promote  anarchy 
rather  than  the  advancement  of  a  higher  civilization. 

Thus  it  was  with  the  Free  Cities  of  Italy.  They  acquired 
political  power  too  suddenly  ;  their  form  of  government  was 
republican  before  their  character  had  become  democratic.  In 
short,  their  external  power  and  prominence  were  more  the  result 
of  political  despotism  than  social  development.  Accordingly 
after  their  great  victory  over  Barbarossa  in  1183,  they  soon  be- 
came the  victims  of  internal  feuds.  Having  no  foreign  enemy  to 
encounter,  they  turned  their  swords  upon  one  another,  which  was 
more  fatal  to  their  prosperity,  power,  and  freedom  than  all  the 
attacks  of  a  foreign  foe.1  Weakened  by  the  factious  war  among 
themselves,  they  soon  became  an  easy  prey  to  monarchy.  By  the 
middle  of  the  thirteenth  century  (1233)  they  had  fallen  into  the 
hands  of  a  monkish  usurper,  Vicenza,  and  by  the  close  of  the 
century  they  were  forced,  with  little  difficulty,  to  submit  to  the 
yoke  of  a  despotic  monarchy.  So  completely  did  the  loss  of 
their  freedom  follow  that  of  their  material  prosperity  that,  "be- 
fore the  middle  of  the  fourteenth  century,  at  the  latest,  all  those 
cities  which  had  spurned  at  the  faintest  mark  of  submission  to 
the  emperors,  lost  even  the  recollections  of  self-goverment,  and 
were  bequeathed,  like  undoubted  patrimony,  among  the  children 
of  their  new  lords." 

Although  brought  about  by  very  different  causes,  the  fall  of 
the  free  cities  in  Italy,  as  in  Spain,  arrested  the  material  prosperity 
of  that  country,  and  consequently  its  social  progress  and  political 
and  religious  freedom  were  greatly  retarded. 

The  history  of  the  Free  Cities  of  Germany  was  somewhat  dif- 
ferent from  that  of  Spain  and  Italy.  In  Germany  the  rapacity  of 
the  barons  and  petty  princes  partook  more  of  the  character  of 
common  highwaymen  than  in  any  other  country.  So  universally 
was  this  the  case  among  the  rural  nobles  that  it  became  customary 
for  them  to  build  their  castles  upon  inaccessible  hills  where  they 
could  command  'the  public  highways.  As  an  evidence  of  the 
prevalence  of  this  practice,  Hallam  relates  the  story,  told  by  a 

"  For  revenge,  she  threw  away  the  pearl  of  great  price,  and  sacrificed  even 
the  recollections  of  liberty." — Hallam's  "  Middle  Ages,"  vol.  i.,  p.  198. 


42  THE   GERMAN  CITIES. 

contemporary  writer,  of  an  archbishop  who  built  a  fortress  of 
this  kind.  No  legal  provision  having  been  made  for  him,  he  was 
asked  by  the  governor  "how  he  was  to  maintain  himself,"  to 
which  he  replied  that  "his  castle  was  situated  near  the  junction 
of  four  roads." 

As  a  means  of  protection  against  the  "  robber  barons,"  the 
cities  allied  themselves  with  the  emperors,  and  the  emperors,  in 
order  to  obtain  assistance  against  the  petty  princes,  willingly 
patronized  the  cities.  German  cities  were  not  entirely  free  from 
the  internal  jealousies  which  were  so  fatal  to  those  of  Italy,  but 
the  constant  danger  from  the  barons  made  some  degree  of  united 
action  necessary  to  their  existence.  Thus  the  Hanseatic 
Union  and  the  League  of  the  Rhine  were  formed  ;  the  first 
about  1250,  and  the  latter  in  1255.  These  two  organizations 
comprised,  at  the  time,  over  a  hundred  and  thirty  cities  leagued 
together  to  defend  themselves  against  the  nobility,  just  as  those 
of  Italy  were  leagued  against  Frederick  I.  By  this  means  the 
German  cities  escaped  the  fate  of  those  in  Lombardy  ;  but  in 
their  very  escape  they  became  the  victims  of  influences  which 
were  scarcely  less  fatal  in  their  results,  though  more  gradual  in 
their  operation.  Through  their  almost  constant  alliance  with 
the  emperor  they  naturally  became  more  and  more  under  his 
influence  and  control ;  and  although  they  did  not  become  imperial 
strongholds,  they  ceased  to  be  democratic  nurseries.  Guizot 
has  well  observed  :  "  They  preserved  their  privileges,  but  they 
remained  confined  to  the  inside  of  their  walls.  Within  these, 
democratic  organization  was  shut  up  and  arrested  ;  if  we  walk 
abroad  over  the  face  of  the  country,  we  find  no  resemblance  of 
it." 1  Thus,  while  they  retained  their  external  form  until  after  the 
close  of  the  sixteenth  century,  at  the  close  of  the  fifteenth  their 
power  as  harbingers  of  industrial  and  political  freedom  was 
practically  destroyed. 

If  we  turn  to  France,  a  similar  picture  presents  itself  ;  although 
the  local  causes  were  different,  the  general  result  was  substantially 
the  same.  France  was  the  birthplace  of  feudalism,  and  it  is 
therefore  not  surprising  that  the  feudal  system  should  have  taken 
deeper  root  in  that  country  than  in  any  other.  While  it  was  a 
fundamental  principle  of  feudalism  that  the  lord  should  be 

1  "  History  of  Civilization,"  p.  223. 


THE  FRENCH  CITIES.  43 

supreme  on  his  own  domain,  in  no  country  was  baronial  sover- 
eignty so  absolute,  in  theory  and  practice,  as  in  France.  There 
the  lord  possessed  all  the  powers  that  were  invested  in  the  king. 
He  even  had  the  right  to  declare  war  against  the  king  himself.  In 
many  countries  this  practice  was  more  or  less  indulged  in,  but  in 
France  it  was  laid  down  as  one  of  the  legal  rights  of  the  lord.  By 
this  means  the  feudal  nobility  in  France  were  equal  in  strength  to 
all  other  elements  combined.  Although  the  French  kings,  in 
order  to  strengthen  their  own  hands,  granted  very  liberal  charters, 
they  were  mainly  confined  to  the  towns  on  the  royal  domains 
and  those  of  the  weaker  nobility  in  the  south  of  France.  Con- 
sequently, when  the  struggle  between  the  barons  and  the  cities 
came,  the  power  of  the  former  proved  too  much  for  the  latter, 
and  the  cities  fell.1 

With  the  fall  of  the  Free  Cities  the  feudal  system  was  re- 
established, and  many  of  its  odious  features  continued  down  to 
the  French  Revolution. 

Passing  from  the  Continent  to  England,  we  shall  find  that,  while 
the  general  appearance  of  the  movement  was  very  similar,  the 
essential  features,  and  therefore  their  effect  upon  civilization,  were 
very  different.  The  Free  Cities  in  England,  like  those  on  the  Conti- 
nent, were  the  birthplaces  of  material  prosperity  and  the  nurseries 
of  civilization  ;  but  in  England  no  elements  were  strong  enough 
to  suppress  them.  Neither  the  king  nor  the  Church,  as  in  Spain  ; 
nor  internal  strife  and  usurpation,  as  in  Italy  ;  nor  baronial 
weakness  and  imperial  strength,  as  in  Germany  ;  nor  the  feeble- 
ness of  royalty  and  the  power  of  Feudalism,  as  in  France,  were 
sufficient  to  prevail  against  the  cities  of  England. 

From  the  fifth  to  the  eleventh  century  there  was  very  little  dif- 
ference in  the  social  state  of  the  various  countries  in  Europe  ;  if 
any  thing,  England  was  probably  less  advanced  than  some  of  the 
rest.  About  the  middle  of  the  eleventh  century,  however,  an 
event  occurred  in  England  which  produced  an  arbitrary  and 
radical  change.  When  William,  Duke  of  Normandy,  decided  to 
present  a  forceful  claim  to  the  English  throne,  he  promised  to 

"  And  so  it  was  in  France.  The  towns,  with  few  exceptions,  fell  at  the  first 
shock  ;  and  the  cities  lost  their  municipal  privileges,  which,  not  being  grafted 
on  the  national  character,  it  was -found  impossible  to  preserve." — Buckle's 
"  History  of  Civilization,"  vol.  i.,  p.  449. 


44  THE  ENGLISH  CITIES. 

freely  distribute  the  wealth  and  land  of  England  among  his  fol- 
lowers in  order  to  induce  them  to  enter  more  heartily  into  the 
struggle,  and  he  was  as  good  as  his  word. 

He  had  no  sooner  obtained  possession  of  the  British  Govern- 
ment, such  as  it  was,  than  he  proceeded  to  dispossess  the  Britons 
of  all  political  power  and  to  confiscate  their  property, — both  of 
which  he  divided  among  his  Norman  followers.1  In  this  redis- 
tribution of  wealth  and  power,  William  never  lost  sight  of  the 
main  object  of  the  conquest, — his  own  power  and  aggrandize- 
ment,— and  hence,  in  making  his  grants,  he  was  always  careful  to 
exact  the  fullest  ackowledgment  of  his  own  supreme  authority. 

The  feudal  system  in  England  was  thus  arbitrarily  recon- 
structed, and,  so  far  as  the  nobles  were  concerned,  on  a  more 
limited  basis  than  that  which  obtained  upon  the  Continent.  For 
instance,  the  most  powerful  of  the  English  barons  never  acquired 
such  sovereign  privileges  as  the  right  of  coining  money  in  their 
own  name  ;  the  right  to  forbid  the  circulation  of  the  royal  money 
upon  their  own  domains  ;  exemption  from  all  public  tribute  ex- 
cept feudal  aids  ;  the  right  of  waging  private  wars,  even  against 
the  king,  etc.*  The  power  of  the  Norman  barons  in  England 
being  thus  limited,  the  contest  for  supremacy  between  feudalism 
and  monarchy  was  more  evenly  balanced.  Under  these  condi- 
tions the  opportunity  for  the  growth  and  safety  of  the  towns  was 
naturally  great.  Consequently,  we  find  that,  while  the  English 
towns  did  not  rise  to  opulence  as  suddenly  as  the  Italian  cities, 
they  made  gradual  progress  toward  wealth,  power,  and  freedom. 

In  order  to  weaken  the  barons,  and  in  the  hope  of  strengthen- 
ing his  own  hand,  the  king  granted  charters  to  the  towns,  ex- 
empting them  from,  and  protecting  them  against,  the  exactions  of 
the  barons.  Another  beneficial  effect  of  "that  vigorous  pre- 
rogative of  the  Norman  monarchs  which  kept  down  the  feudal 
aristocracy  "  was,  that,  because  of  the  inability  of  the  barons  to 

1  "  This  exclusion  of  the  English  from  political  privileges,  "says  Hallam,"  was 
accomplished  with  such  a  confiscation  of  property  as  never  perhaps  has 
proceeded  from  any  government  not  avowedly  founding  its  title  upon  the  sword. 
In  twenty  years  from  the  accession  of  William  almost  the  whole  soil  of  England 
had  been  divided  among  foreigners." — "  Middle  Ages,"  vol.  ii.,  p.  27. 

*  See  Hallam's  "  Middle  Ages,"  vol.  i.,  p.  127  ;  also  Buckle's  "  History  of 
Civilization,"  vol.  i.,  p.  445. 


THE  MAGNA    CHARTA.  45 

cope  single-handed  against  the  king,  it  became  necessary  for 
them  to  include  the  rights  and  privileges  of  the  burghers  (whom 
they  hated)  with  their  own. 

It  was  by  this  means  that,  under  the  leadership  of  Stephen 
Laughton  and  the  Earl  of  Pembroke,  the  Magna  Charta  was 
wrung  from  that  rapacious  and  treacherous  coward,  King  John, 
in  1215.  This  declared  that  :  "  The  charter  of  the  city  of  Lon- 
don, and  of  all  the  towns  and  boroughs,  is  inviolable  ;  no  freeman 
shall  be  taken  or  imprisoned,  or  be  deprived  of  his  freehold  liber- 
ties ;  or  free  customs  ;  or  be  outlawed  ;  or  exiled  ;  or  any  other- 
wise destroyed  but  by  lawful  judgment  of  his  peers,  or  by  the 
law  of  the  land."  The  great  charter  of  rights  extended  as  much 
protection  to  the  burghers  against  the  violence  and  oppression  of 
the  barons  as  it  did  to  the  barons  against  the  oppressions  of  the 
king,  and  in  order  to  secure  the  privileges  thus  obtained  subse- 
quent kings  were  forced  to  solemnly  ratify  this  great  charter  * 
thirty-two  different  times.  In  the  same  way,  fifty  years  later,  the 
burghers  obtained  the  right  of  popular  representation  in  Parlia- 
ment. It  was  in  the  protracted  struggle  between  the  confederate 
barons  and  Henry  III.  that,  in  order  to  secure  the  favor  of  the 
burghers  and  thereby  strengthen  the  hands  of  the  barons  against 
the  king,  the  Earl  of  Leicester,  on  the  i2th  of  December,  1264, 
issued  writs  to  all  the  sheriffs,  directing  them  to  return  to  parlia- 
ment "  two  citizens  for  every  city  and  borough,  in  addition  to 
the  knights  of  the  county."*  Nearly  all  the  charters  that  were 
granted  to  the  towns  after  the  reign  of  John  gave  them  complete 
municipal  independence,  including  the  right  to  make  their  own 
laws,  elect  their  own  magistrates  and  judges,  levy  their  own 
taxes,  etc. 

With  these  powers  the  Free  Towns  could  offer  protection  and 
citizenship  to  all  who  would  reside  within  their  walls.  Villeins 
were  declared  free,  and  endowed  with  the  free  rights  of  citizen- 
ship, who  fled  to  the  chartered  towns  and  continued  residents  for 
a  year  and  a  day.3  This  obviously  tended  to  increase  the  power 

1  See  Buckle's  "  History  of  Civilization,"  vol.  i.,  pp.  446,  447  ;  also  Hal- 
lam's  "  History  of  the  Middle  Ages,"  vol.  ii.,  pp.  73,  83. 
1  Hallam's  "  Middle  Ages,"  vol.  ii.,  p.  73. 
3  Ibid.,  p.  203.     See  also  Wade's  "  History  of  England,"  p.  9. 


46  RISE   OF  THE    WAGE   SYSTEM. 

of  the  towns  and  the  number  of  freemen,  and  at  the  same  time 
to  diminish  the  power  of  the  Lords,  as  is  abundantly  shown  by 
the  petitions  sent  to  Parliament  by  the  lords,  praying  :  "  that 
the  villeins  might  not  put  their  children  to  school  .  .  .  for  the 
honor  of  all  freemen  in  the  kingdom  "  ;  and  complaining  :  "that 
villeins  fly  to  cities  and  boroughs,  whence  their  masters  cannot 
recover  them  ;  and,  if  they  attempt  it,  are  hindered  by  the  peo- 
ple ;  and  prayed  that  the  lords  might  seize  their  villeins  in  such 
places  without  regard  to  the  franchises  hereof."  The  result 
was  that  the  lords  were  compelled  to  be  more  generous  in  their 
treatment  of  villeins  in  order  to  prevent  them  from  running  away 
to  the  towns,"  and  consequently,  by  the  last  quarter  of  the  thir- 
teenth century  their  condition  had  become  greatly  modified. 
Instead  of  being  inseparable  parts  of  the  lord's  estate,  the  villeins 
were  now  bound  only  to  perform  certain  specified  services,  known 
as  "  labor  rents,"  for  which  they  were  allowed  to  possess  the  land 
they  lived  upon,  or  work  for  wages  the  remainder  of  the 
time  as  "free  laborers  for  another  lord."5  By  the  close  of  the 
reign  of  Edward  II.  (1327)  labor  rents  had  almost  entirely  dis- 
appeared 4  ;  and  before  the  middle  of  the  reign  of  Edward  III. 
the  villeins,  for  the  most  part,  had  become  wage-laborers/  and 
feudalism,  as  an  industrial  system,  was  practically  overthrown. 
The  effect  of  these  influences  upon  the  industrial  condition  of 
the  masses  is  further  seen  in  the  fact  that,  early  in  the  fourteenth 
century,  not  only  artisans  but  farm  laborers  began  to  demand 
higher  wages.  Rogers  informs  us  that,  at  the  close  of  the  famine 
in  1321,  wages  rose  "from  23  to  30  per  cent.,  fully  20  per  cent, 
of  which  became  permanent,"  6  and  thirty  years  later  (1350)  they 
rose  again  from  50  to  100  per  cent.7  This  marked  increase  in 

1  See  Eden's  "State of  the  Poor,"  vol.  i.,  pp.  3,  4  ;  also  Hallam's  "  Middle 
Ages,"  vol.  ii.,  p.  207. 

8  "  It  was  natural  that  the  country  people,  or  uplandish  folk,  as  they  were 
called,  should  repine  at  the  exclusion  from  that  enjoyment  of  competence  and 
security  for  the  fruits  of  their  labor,  which  the  inhabitants  of  the  towns  so  fully 
possessed." — Hallam's  "  Middle  Ages,"  vol.  ii.,  pp.  204,  205. 

8  Hallam's  "  Middle  Ages,"  vol.  ii.,  p.  202. 

4  Rogers'  "  Six  Centuries  of  Work  and  Wages  in  England,"  p.  218. 

*  Hallam's  "  Middle  Ages,"  vol.  ii.,  p.  204. 

*  "  Six  Centuries  of  Work  and  Wages,"  pp.  218,  237. 
T  Ibid.,  p.  237. 


FALL    OF  FEUDALISM.  47 

wages  was  not  the  result  of  temporary  causes,  such  as  famine, 
black  death,  etc.,  but  the  natural  effect  of  the  period  in  which 
English  commerce  and  manufacture  took  their  first  great  start.1 
It  was  in  1431  that  Edward  III.,  the  "father  of  English  com- 
merce," induced  Flemish  manufacturers  to  settle  in  England, 
promising  them  that  "  they  should  feed  on  fat  beef  and  mutton 
till  nothing  but  fullness  should  stint  their  stomachs." 

The  increasing  wealth  and  comfort  of  the  laboring  classes 
during  this  period  is  further  shown  by  the  constant  complaints  of 
contemporary  writers  about  "  the  extravagance  and  vanity  of 
the  common  people,"  and  the  frequent  petitions  to  Parliament 
complaining  that  "  the  masters  were  obliged  to  give  their  servants 
and  laborers  great  wages  to  prevent  their  running  away  to  towns 
where  they  became  artificers,  clerks,  etc.,  to  the  great  detriment 
of  agriculture."  Thus  the  natural  prosperity  which  had  its  rise 
in  the  towns  during  the  twelfth  and  thirteenth  centuries  extended, 
in  the  fourteenth,  to  the  farm  laborers  in  the  rural  country  and 
consummated  the  fall  of  feudalism. 

Thus  the  towns  in  England  gradually  rose  from  industrial  to 
commercial,  and  from  commercial  to  political,  importance.  As 
their  wealth  did  not  precede  their  wants,  each  addition  to  their 
privileges  was  an  increase  of  their  power,  and  their  influence 
upon  freedom  and  progress  extended  beyond  their  own  walls. 
Consequently,  although  their  struggles  were  severe,  they  survived 
until  they  had  overthrown  feudalism,  transferred  the  slavery  of 
villeinage  into  wage-labor,  securely  established  popular  repre- 
sentation, and  laid  the  foundation  for  the  religious  reformation 
in  the  sixteenth,  the  political  revolution  in  the  seventeenth,  and 
the  industrial  revolution  in  the  eighteenth  and  nineteenth  cen- 
turies. 

It  is  a  great  mistake  to  conclude,  as  Fiske  *  and  other  eminent 
writers  appear  to  have  done,  that  this  is  due  to  some  inherent  supe- 
riority in  the  English  race.  A  careful  consideration  of  the  funda- 
mental causes  which  underlie  and  promote  social  development  will 
show  that,  while  the  political  and  religious  institutions  of  a  country 
are  determined  by  the  character  of  its  people,  the  character  is  main- 
ly determined  by  the  industrial  and  social  environment.  Therefore, 

1  Cf.  "Wealth  and  Progress,"  pp.  110-131. 
1  "American  Political  Ideas,"  chap.  iii. 


48  KISE   OF   THE  MIDDLE   CLASS. 

the  cause  of  the  superiority  of  the  English  over  the  Spanish, 
Italian,  and  German  institutions  in  the  seventeenth,  eighteenth, 
and  nineteenth  centuries  is  not  to  be  found  in  any  inherent 
quality  in  the  English  race,  but  in  the  difference  of  its  industrial 
and  social  conditions  in  the  thirteenth,  fourteenth,  and  fifteenth 
centuries.  Manufacture  and  trade  became  more  profitable  than 
agriculture,  and  therefore  naturally  attracted  to  themselves  the 
more  intelligent  and  ambitious.  By  this  means,  during  the  fifteenth 
and  sixteenth  centuries  there  arose  a  middle  or'commercial  class, 
whose  increase  in  wealth  and  influence  was  such  that  early  in  the 
seventeenth  century  it  began  to  rival  the  landed  aristocracy.' 
Before  the  close  of  the  seventeenth  century  the  aggregate  income 
of  the  manufacturers  and  merchants  was  more  than  equal  to  that 
of  the  nobility,  and  by  the  end  of  the  eighteenth  century  the  mid- 
dle class  had  become  the  dominant  power  in  society. 

1  "  In  the  course  of  the  sixteenth  century  the  commercial  prosperity  of  Eng- 
land had  increased  with  amazing  rapidity,  while  during  the  same  time  much 
territorial  wealth,  much  baronial  property,  had  changed  hands."  —  Guizot's 
"  History  of  Civilization,"  p.  271. 


CHAPTER  VII. 

THE  PROGRESS  OF  POLITICAL  AND  RELIGIOUS 
FREEDOM. 

IF  we  examine  the  progress  of  political  and  religious  freedom 
we  shall  find  that  it  has  always  followed  the  line  of  the  material 
prosperity  of  the  masses,  rising  where  that  rose,  falling  where  it 
fell,  and  becoming  permanent  only  where  industrial  improvement 
had  been  general  and  continuous.  England  was  the  only  country 
in  which  the  Free  Towns  were  not  overpowered  by  either  the 
Church,  the  Monarchy,  or  the  Barons,  and  consequently  it  was  the 
only  country  in  which  social  and  political  progress  was  not 
arrested. 

The  Cortes  of  Spain,  the  States-General  of  France,  and  the 
Republics  of  Italy  rose  and  passed  away,  scarcely  leaving  their 
imprint  upon  the  national  character,  while  the  English  House  of 
Commons  has  ever  stood  out  as  a  conspicuous  feature  of  modern 
civilization.  "  No  great  measure,"  says  Guizot,1  "  which  has 
truly  had  any  influence  upon  society  in  France,  no  important 
reform  either  in  the  general  legislation  or  administration,  ever 
emanated  from  the  States-General.  .  .  .  Tjie  Cortes  of  Portu- 
gal and  Spain  afford  the  same  general  result.  .  .  .  The  Cortes, 
like  the  States-General  of  France,  has  been  an  accident  in  his- 
tory, and  never  a  system — never  a  political  organization  or  regu- 
lar means  of  government.  .  .  .  The  lot  of  England  has  been 
different.  .  .  .  The  Commons  obtained  in  England  a  power 
much  superior  to  those  on  the  continent,  a  power  really  capable 
of  influencing  the  government  of  the  country.  In  the  fourteenth 
century,  the  character  of  the  English  parliament  was  already 

1  "  History  of  Civilization,"  pp.  225-7. 
4  49 


50  WICLIFF,    TYLER,   AND  HUSS. 

formed.  .  .  .  The  attempt  to  bring  together  the  various  ele- 
ments of  society,  and  to  form  them  into  one  body  politic,  one  true 
state  or  commonwealth,  did  succeed  in  England  while  it  failed  in 
every  part  of  the  Continent." 

What  was  true  of  municipal  privileges  and  political  representa- 
tion was  equally  true  of  religious  liberty.  In  the  fourteenth 
century,  when,  on  the  Continent,  the  masses  were  losing  their 
political  rights  and  society  was  gravitating  towards  civil  and  re- 
ligious despotism,  the  people  of  England  were  steadily  advancing 
towards  still  more  freedom. 

The  increasing  prosperity  of  the  towns  from  the  reign  of  Henry 
III.  to  the  middle  of  the  reign  of  Edward  III. — during  which 
time  villeinage  had  been  transferred  into  wage-labor,  and  the  last 
thirty  years  (1321-1351)  of  which  had  witnessed  a  general  and 
permanent  rise  of  wages — greatly  developed  the  social  and  intel- 
lectual character  of  the  people,1  and  made  the  successful  advent 
of  Wicliff  and  Wat  Tyler  possible.  Whatever  may  have  been 
the  influences  that  induced  Wicliff  to  openly  renounce  the 
authority  of  the  pope,  denounce  the  usurpations  of  the  Roman 
Church,  stigmatize  the  friars  as  its  political  and  financial  emis- 
saries, and  insist  upon  the  right  of  the  laity  to  read  and  interpret 
the  Bible — which  he  subsequently  translated  into  English, — the 
effect  of  his  teachings  upon  the  community  ultimately  depended 
upon  the  character  of  the  people.*  Had  Wicliff  lived  before, 
instead  of  after,  the  Free  Cities,  his  own  fate,  as  well  as  the 
influence  of  his  doctrine,  would  probably  have  been  entirely 
different. ' 

This  is  well  illustrated  by  the  fate  of  the  Hussites  in  Bohemia 
some  forty  years  later.  When  John  Huss,  through  the  treachery 

1  "  A  silent  alteration  had  been  wrought  in  the  condition  and  character  of  the 
lower  classes  during  the  reign  of  Edward  III.  This  was  the  effect  of  increased 
knowledge  and  refinement,  which  had  been  making  a  considerable  progress  for 
full  half  a  century,  though  they  did  not  readily  permeate  the  cold  region  of 
poverty  and  ignorance." — Hallam's  "  Middle  Ages,"  vol.  ii.,  p.  204. 

5  As  Buckle  truly  says  :  "Although  the  origin  of  a  new  opinion  may  be  due  to 
a  single  man,  the  result  which  the  new  opinion  produces  will  depend  on  the  con- 
dition of  the  people  among  whom  it  is  propagated.  If  a  religion  or  a  philosophy 
is  too  much  in  advance  of  a  nation  it  can  do  no  present  service,  but  must  bide 
its  time  until  the  minds  of  men  are  ripe  for  its  reception." — "  History  of  Civili- 
zation," vol.  i.,  p.  186. 


FAILURE    OF    THE   HUSSITES.  51 

(or  weakness)  of  Emperor  Sigismund,  was  sent  to  the  stake 
(1416)  for  advocating  the  doctrines  of  Wicliff,  his  followers 
flew  to  arms  under  the  leadership  of  one  John  Zisca,  who,  though 
totally  blind,  proved  to  be  almost  a  second  Hannibal.  At  the 
death  of  Zisca,  however,  the  Hussites  fell  to  pieces  ;  in  less  than 
twenty  years  after  the  death  of  Huss  they  were  suppressed  ;  and 
by  the  middle  of  the  century  the  movement  was  practically 
obliterated.1  Thus  the  agitation  of  Huss  in  Bohemia  only  con- 
tinued during  the  life  of  its  originators,  and  died  without  leaving 
any  lasting  impression  on  the  character  of  the  people,  while  that 
of  Wicliff  permeated  the  whole  community  to  such  an  extent 
that,  it  was  said,  every  third  man  was  a  Lollard.  Wicliff's  Bible 
created  such  a  desire  for  reading,  especially  among  the  middle 
classes,  that,  by  the  middle  of  the  fifteenth  century,  the  art  of 
printing — which  had  been  waiting  a  thousand  years  for  a  book- 
reading  civilization — became  a  success,  and  by  its  aid  the 
country  became  ripe  for  the  great  religious  reformation  early  in 
the  sixteenth  century.  Nor  can  the  difference  in  the  fate  of  this 
movement  in  England  and  Bohemia  be  attributed  to  any  differ- 
ence in  the  quality  of  the  leaders  or  the  tenets  of  the  creeds. 
Both  Wicliff  and  Huss  represented  leading  universities,  and  both 
promulgated  essentially  the  same  doctrine.  The  only  differences 
that  existed  were  in  the  condition  and  character  of  the  people. 

The  same  is  true  of  the  Wat  Tyler  insurrection  in  1381.  Un- 
questionably the  "  groat-tax  "  *  Avas  the  immediate  cause  of  the 
discontent  among  the  peasants,  and  the  killing  of  the  tax-collector 
by  Tyler,  for  the  assault  upon  his  daughter,  was  the  special  fact 
which  caused  the  uprising  and  put  Wat  Tyler  at  its  head  ;  but 
the  reforms  that  were  demanded,  and  the  permanent  effect  of  the 
movement  upon  the  community,  depended  upon  the  character  of 
those  who  took  part  in  it  and  were  influenced  by  it.  Despite  the 
fact  that  Tyler  was  treacherously  slain,  the  other  leaders  all  sub- 

1  "  I  cannot  assign  any  beneficial  results  to  the  schism  of  the  Hussites,  at 
least  its  immediate  results,  in  the  country  where  it  appeared." — Hallam's 
"  Middle  Ages,"  vol.  ii.,  p.  324. 

*  A  groat  is  fourpence  (eight  cents).  The  groat-tax  was  a  tax  of  three  groats 
a  year  levied  upon  every  person  in  the  kingdom,  male  and  female,  over  fourteen 
years  of  age.  It  was  the  refusal  of  Tyler's  daughter,  under  fourteen  years  of 
age,  that  led  to  the  assault,  for  which  Wat  Tyler  struck  the  collector  dead  at  a 
blow. 


52  THE  JACQUERIE  AND  PEASANT    WAR. 

sequently  hanged,  and  the  declaration  of  the  Lords  and  Commons 
in  Parliament  that  they  would  never  concede  to  the  demand — 
"if  it  would  save  them  from  all  perishing  together  in  one  day,"- 
the  insurgents  finally  obtained  all  that  they  claimed.  The  poll- 
tax  was  never  collected,  and,  we  are  told,  "  the  English  laborer 
for  a  century  or  more  became  virtually  free  and  constantly 
prosperous."  ' 

If  we  compare  the  Insurrection  in  England  with  the  Jacquerie 
in  France,  twenty- three  years  earlier  (1358),  or  with  the  Peasant 
War  in  Germany,  one  hundred  and  forty-four  years  later  (1525), 
the  case  is  even  more  striking  than  that  of  Huss  and  Wicliff.  In 
each  of  these  countries  the  revolt  was  a  spontaneous  uprising  of 
the  people  to  demand  a  reform  in  their  industrial  and  social  con- 
ditions. There  was  one  important  difference,  however  :  the 
Jacquerie  and  the  Peasant  War  were  preceded  by  a  long  period 
of  the  direst  poverty  and  galling  degradation,  while  the  rising  in 
England  was  preceded  by  more  than  a  century  of  almost  con- 
tinuous prosperity  and  growing  freedom.  Nothing  is  so  effective 
in  producing  weak  character  as  poverty  ;  and,  for  the  same 
reason  that  empty  stomachs  make  poor  soldiers,  empty  characters 
make  poor  reformers. 

The  Jacquerie  and  Peasant  War  were  desperate  outbursts 
of  long  pent-up  degradation  and  despair.  The  struggles  of  the 
people  were  fierce,  but  their  defeat  was  overwhelming,  and  they 
were  hurled  back  into  poverty  and  subjected  to  a  despotism  as 
oppressive  as  that  against  which  they  had  rebelled.  The  English 
uprising,  on  the  contrary,  being  the  natural  outcome  of  previous 
material  progress,  led  on  to  still  greater  prosperity  and  a  higher 
civilization,  which  laid  the  foundation  for  the  success  of  the  great 
event  of  the  sixteenth  century — the  religious  revolution  known  as 
the  Reformation. 

The  Reformation  was  really  a  social  movement.  It  was  the 
first  struggle  of  the  middle  class  for  freedom — of  which  the  new 
religious  doctrines  were  more  the  consequence  than  the  cause. 
Wicliff's  first  protest  was  not  against  the  unsoundness  of  the  spir- 
itual teachings  of  the  Church,  but  against  the  social  injustice  of 
its  temporal  exactions,  which  were  declared  by  Parliament  to 
amount  "  to  five  times  as  much  as  the  taxes  levied  by  the  king.'" 

1  Rogers'  "  Six  Centuries  of  Work  and  Wages  in  England,"  p.  271. 
'Draper's  "  Intellectual  Development  of  Europe,"  pp.  397-434. 


SOCIAL  ASPECT  OF   THE  REFORMATION.  53 

When  he  denounced  the  friars  as  financial  emissaries  of  the 
pope,  and  advocated  the  heavy  taxation  of  the  monasteries, 
telling  the  king  that  "  to  prohibit  the  transmission  of  English 
money  into  Roman  coffers  was  not  only  justifiable  but  a  public 
duty,"  he  was  simply  holding  up  the  hands  of  Edward  and  his 
Parliament  against  the  outrageous  demand  of  the  pope  for  the 
arrears  of  tribute — promised  in  a  moment  of  humiliation  by  the 
weak  and  cowardly  King  John.  His  subsequent  revolt  against 
the  theological  dogma  of  the  Church  was  the  natural  sequence  of 
this  opposition  to  her  temporal  usurpations. 

Again,  in  the  sixteenth  century,  Luther  did  not  raise  his  first 
opposition  against  the  doctrines  of  the  Church,  but  against  her 
unscrupulous  methods  of  exhorting  tribute  from  the  people.  His 
first  public  movement  (1517)  was  the  posting  upon  the  doors  of 
the  cathedral  at  Wittenberg  of  ninety-five  objections  to  the  prac- 
tice of  selling  indulgences.  It  was  not  until  he  had  been  repri- 
manded by  the  pope,  and  afterwards  ordered  to  publicly  retract 
his  utterances  against  the  traffic,  and  finally  condemned  as  a 
heretic,  that  he  challenged  the  religious  doctrines  of  the  Church. 
Finding  himself  in  a  deadly  conflict  with  the  papal  authority  on 
temporal  matters,  he  became  defiant  on  spiritual  matters  also, 
and  in  1520  publicly  committed  the  books  of  the  canon  law  and 
the  bull  of  excommunication  to  the  flames. 

In  England  the  Reformation  came  into  active  existence  in  a 
very  similar  way.  By  the  first  quarter  of  the  sixteenth  century 
the  usurpation  of  temporal  power  and  the  extortion  of  money 
from  the  people  by  the  clergy  had  become  a  public  scandal.  In 
1529  the  House  of  Commons  declared,  in  a  formal  petition  to  the 
king,  "  that  the  house  of  convocation  made  laws  without  the 
consent  or  knowledge  of  the  people  ;  that  such  laws  were  never 
published  in  the  English  language,  and  that,  nevertheless,  men 
were  daily  punished  under  them  without  ever  having  had  an 
opportunity  to  eschew  the  penalties  .  .  .  that  poor  men  were 
harassed  without  cause  in  the  spiritual  courts  for  the  mere  pur- 
pose of  extortion,  and  exorbitant  fees  were  exacted  from  them 
without  cause  ;  and  that  bishops  illegally  imprisoned,  sometimes 
for  a  year  or  more,  persons  in  their  jails  without  informing  them 
of  the  cause  of  their  imprisonment  or  the  name  of  their  accuser." 
In  their  defence  against  these  charges  the  bishops  declared  :  "  that 
canon  law  was  superior  to  the  laws  of  the  realm  ;  that  the  punish- 


54  THE   SPREAD   OF  PROTESTANTISM. 

ment  inflicted  upon  laymen  had  been  for  the  health  of  their  souls  ; 
and  that,  generally,  saints  may  claim  powers  to  which  common 
men  are  not  entitled." 

The  determination  of  the  Commons  to  curtail  the  temporal 
power  of  the  clergy  at  this  period  is  shown  by  the  number  of 
laws  that  were  passed  for  that  purpose,  among  which  was  the 
"  Clergy  Discipline  Act."  Thus,  when  it  became  necessary  for 
Henry  VIII.  to  depose  the  pope  in  order  to  obtain  Anne  Boleyn, 
and  subsequently  to  dispossess  the  clergy  of  their  wealth  in  order 
to  retain  his  newly  acquired  authority  over  the  Church,  he  was, 
for  social  reasons,  readily  sustained  by  the  Commons  and  the 
middle  class  in  his  confiscation  policy. 

The  Reformation  was  to  the  middle  classes  of  the  sixteenth 
century  what  the  movements  of  Wicliff  and  Wat  Tyler  were  to 
the  peasantry  of  the  fourteenth.  It  attained  higher  intellectual 
and  moral  results  because  it  was  based  upon  higher  material  and 
social  conditions.  Although  Protestantism  spread  over  nearly 
all  Europe,  it  failed  to  produce  any  permanent  effect  in  those 
countries  where  the  Free  Cities  had  been  overthrown  and  the 
material  progress  of  the  masses  had  been  arrested.  Thus,  in 
Spain  and  Italy,  where  the  Free  Cities  had  been  most  thoroughly 
suppressed,  the  influence  of  the  Reformation  was  the  most 
fleeting.  In  the  former  country  it  was  entirely  stamped  out  in 
ten  years/  and  in  the  latter  it  was  suppressed  before  it  could 
take  root  among  the  people.8  Although  its  struggle  for  a  foot- 
hold was  longer  and  fiercer  in  France,  its  extinction  was  hardly 
less  complete.  In  Germany,  where  the  Free  Cities  continued  to 
a  much  later  date,  its  influence,  though  more  general  and  lasting, 
did  not  become  permanent.  It  was  only  in  England  and  Switzer- 
land, where  the  Free  Cities  were  never  entirely  conquered,  that 
the  Reformation  became  permanently  established. 

If  we  pass  from  the  sixteenth  to  the  seventeenth  century  we 
shall  find  that  the  march  of  progress  was  in  accordance  with  the 
same  general  principles.  It  was  the  same  character,  produced 
by  the  same  general  causes,  that  revolted  against  the  usurpations 
and  oppressions  of  the  Church  in  1529,  and  finally  took  off  the 
head  of  Charles  I.  in  1649.  In  short,  for  the  same  reason  that 

'Buckle's  "  History  of  Civilization,"  vol.  ii.,  p.  19. 
*Guizot's  "  History  of  Civilization,"  p.  260. 


POLITICAL  REVOLUTIONS.  55 

the  Reformation  in  the  sixteenth  century  succeeded  in  estab- 
lishing the  right  of  private  judgment  in  England — while  it  failed 
on  the  Continent — the  political  revolution  in  the  seventeenth  cen- 
tury established  popular  constitutional  government  in  the  same 
country — while  it  utterly  failed  in  France.1  To  use  the  eloquent 
language  of  Professor  Fiske  :  "  The  close  of  the  seventeenth  cen- 
tury, which  marks  the  culmination  of  the  Asiaticizing  tendency  in 
Europe,  saw  despotism,  both  political  and  religious,  firmly  estab- 
lished in  France  and  Spain  and  Italy  and  in  half  of  Germany  ; 
while  the  rest  of  Germany  seemed  to  have  exhausted  itself  in  the 
attempt  to  throw  off  the  incubus.  But  in  England  this  same 
epoch  saw  freedom,  both  political  and  religious,  established  on  so 
firm  a  foundation  as  never  again  to  be  shaken,  never  again  with 
impunity  to  be  threatened,  so  long  as  the  language  of  Locke  and 
Milton  and  Sydney  shall  remain  a  living  speech  on  the  lips  of 
men."  * 

It  is  equally  obvious,  from  the  industrial  history  of  the  period, 
that  when,  from  causes  elsewhere  explained,3  the  material 
progress  of  the  laboring  classes  was  arrested  in  the  middle  of  the 
fifteenth  century,  their  march  towards  freedom  was  also  arrested. 
It  was  only  that  small  portion  of  laborers  who  passed  into  the 
ranks  of  the  middle  or  capitalist  class  in  the  fifteenth,  who  went 
on  to  freedom  in  the  sixteenth  and  seventeenth  centuries.  The 
history  of  the  Poor-laws,  the  Act  of  Settlement,  and  the  Allowance 
system,  clearly  show  the  condition  of  the  masses  had  not  been 
improved  from  the  middle  of  the  fifteenth  to  that  of  the  eighteenth 
century,  and  also  that  their  liberties  were  not  enhanced  by  the 
Reformation,  the  Commonwealth,  or  the  Revolution  of  1688. 4  It 

1  The  difference  in  the  condition  and  character  of  the  English  and  French 
Revolutions  is  clearly  presented  by  Buckle  in   "  History  of  Civilization,"  vol. 
i.,  chapter  x.  ;    and  even  Guizot,  the  French  historian,  in  discussing  the  Eng- 
lish Revolution,  exclaims  :   "  How  came  it  to  pass  that  this  struggle  took  place 
in  England  sooner  than  anywhere  else  ?     How  happened  it  that  the  revolution 
of  a  political  character  coincided  here  with  those  of  a  moral  character  sooner 
than  they  did  on  the  Continent  ?" — "  History  of  Civilization,"  p.  270. 

2  "American  Political  Ideas,"  p.  119. 

3  See  "  Wealth  and  Progress,"  pp.  132-144. 

4  "  The  eager  spirits  who  crowded  the  House  of  Commons,  the  mounted  yeo- 
men who  rode  with  Hampden,  the  men  who  fought  and  won  Marston  Moor,  and 
Naseby,  thought  no  more  of  the  peasant  and  the  workman,  had  no  more  care 


56  XISE   OF    THE  FACTORY  SYSTEM. 

was  the  commercial  prosperity  of  England,  during  the  first  half 
of  the  eighteenth  century,  that  made  it  possible  to  produce 
wealth  cheaper  by  machinery  than  by  hand  labor.  This  led  to 
the  organization  of  the  factory  system,  which,  during  the  first 
quarter  of  the  present  century,  entirely  changed  the  economic 
condition  of  the  English  laborer,  and  has  since  revolutionized 
the  industrial  system  of  all  Christendom.  The  factory  system 
broke  up  the  isolated  and  non-socializing  system  of  domestic  in- 
dustry, and  it  brought  the  laborers  into  closer  and  more  frequent 
intercourse  with  one  another,  socially  as  well  as  industrially. 
The  influence  of  this  upon  the  wants  and  habits  and  consequently 
upon  the  material  condition  of  the  masses,  is  shown  by  the  rise 
of  wages  during  the  first  twenty  years  of  the  present  century. 
During  the  next  twenty  years  the  improved  condition  of  the 
masses  was  still  more  marked,  for  during  that  time  there  was  a 
pronounced  fall  in  prices  as  well  as  a  distinct  rise  in.  money 
wages.1  The  influence  of  this  material  prosperity  upon  the 
political  freedom  of  the  laboring  classes  is  manifest  from  the 
liberal  legislation  that  has  followed  from  1825  to  the  present 
time.  Previous  to  this  time  industrial  legislation,  from  the 
"Statute  of  Laborers"  (1350),  was  directed  to  keeping  down 
wages  and  restricting  the  social  opportunities  of  the  masses.  Now 
for  the  first  time  in  history  the  power  of  government  was  directly 
exercised  on  the  side  of  the  laboring  classes.  In  1819  the  first 
law  was  enacted  restricting  the  hours  that  women  and  children 

for  bettering  him,  than  the  Irish  patriots  of  1782  cared  for  the  kernes  and 
cottiers  on  whose  labor  they  lived.  .  .  .  The  great  Revolution  which  established 
the  authority  of  Parliament,  put  an  end  to  arbitrary  power,  and  relieved  the  con- 
sciences of  those  who  could  not  accord  themselves  to  the  worship  of  the  Eng- 
lish Church,  brought  no  liberty  to  the  peasant  and  artisan.  It  stereotyped  their 
servitude.  .  .  .  Laborers  had  ceased  to  be  factors  in  political  action,  and 
were  simply  ignored  for  a  century  or  more.  .  .  .  All  this  too  was  done  when  the 
patriots  and  placemen  chattered  about  liberty  and  arbitrary  administration,  and 
fine  ladies  and  gentlemen  talked  about  the  rights  of  man." — Thorold  Rogers' 
"  Six  Centuries  of  Work  and  Wages,"  pp.  432-434. 

1  According  to  Thorold  Rogers,  wages  from  1800  to  1820  were  55.25  pence 
per  day,  while  from  1821  to  1840  they  were  62.75,  and  during  the  former 
period  a  given  quantity  of  seven  of  the  chief  necessaries  of  life  cost  232.5 
shillings,  while  in  the  latter  they  only  cost  146.35  shillings. — "Six  Centuries 
of  Work  and  Wages  in  England,"  p.  504.  Cf.  Tooke's  "  History  of  Prices," 
vol.  i.,  pp.  329,  330. 


SOCIAL  REFORMS.  57 

should  be  employed  in  factories.  In  1824  the  laws,  which  for 
nearly  five  centuries  had  made  it  a  penal  offence  for  workingmen 
to  organize  for  the  promotion  of  their  own  interest,  were  re- 
pealed ;  as  was  also  the  Quarter-Sessions  Assessment  Act.1  In 
1825,  1831,  1833,  1844,  1847,  J874,  and  1882,  important  laws  were 
enacted  reducing  the  hours  of  labor,  by  instalments,  from 
fourteen  to  nine  and  a  half  hours  per  day  ;  also  providing  com- 
pulsory education  for  all  working  children  under  fourteen  years 
of  age  ;  superior  sanitary  regulations  for  all  factories  and  work- 
shops ;  proper  protection  against  dangerous  machinery  ;  making 
the  employer  responsible  for  injury  to  laborers,  etc.  Through 
the  constantly  increasing  influence  of  the  growing  intelligence 
and  social  character  of  the  laboring  classes  upon  public  opinion, 
the  right  to  vote  was  extended,  in  1832,  1867,  and  1884,  from  the 
middle  to  the  laboring  classes  ;  the  last  instalment  making  the 
agricultural  laborer  politically  (at  least  on  election  day)  the  equal 
of  the  Duke  of  Westminster.  It  was  during  this  period  also  that 
religious  tests  for  holding  government  offices  were  abolished  ; 
that  Catholics  (1828)  and  Jews  (1845)  were  admitted  to  repre- 
sentation in  Parliament  and  permitted  to  enter  the  universities  ; 
that  tithes  were  commuted  and  church  rates  were  abolished  ;  that 
the  great  Chartist  movement *  was  inaugurated  ;  that  the  con- 
spiracy laws  were  repealed  ;  that  stamps  on  newspapers  were 
abolished  ;  and  a  free  press  and  free  speech  were  established. 
Thus,  in  the  same  way  and  for  the  same  reason  that  the  civil 
and  religious  liberty  acquired  by  the  middle  classes  in  the  six- 

1  See  Rogers'  "  Work  and  Wages,"  p.  438. 

*  Macaulay  clearly  saw  the  historical  error  of  ascribing  our  industrial  and 
social  progress  to  our  political  institutions,  and  says  :  "I  am  perfectly  aware  of 
the  immense  progress  which  your  country  has  made  and  is  making  in  population 
and  wealth.  I  know  that  the  laborer  with  you  has  large  wages,  abundant  food, 
and  the  means  of  giving  some  education  to  his  children.  But  I  see  no  reason 
for  attributing  these  things  to  the  policy  of  Jefferson.  .  .  .  You  will,  I  am 
sure,  acknowledge  that  the  progress  which  you  are  now  making  is  only  a  con- 
tinuation of  the  progress  which  you  have  been  making  ever  since  the  middle  of 
the  seventeenth  century.  It  therefore  seems  to  me  quite  clear  that  the  facts 
which  you  cite  to  prove  the  excellence  of  purely  democratic  institutions,  ought 
to  be  ascribed  not  to  those  institutions,  but  to  causes  which  operated  in  America 
long  before  your  Declaration  of  Independence." — Macaulay's  letter  on  Randall's 
"  Life  of  Jefferson,"  Oct.  9,  1858. 


58  INDUSTRIAL   CONDITIONS  OF  AMERICA. 

teenth  and  seventeenth  centuries  was  the  fruition  of  the  material 
progress  of  the  fourteenth  and  fifteenth  centuries,  the  social, 
religious,  and  political  freedom  obtained  by  the  masses  in  the 
nineteenth  century  is  the  result  of  the  material  prosperity  which 
made  the  use  of  steam,  the  spinning-jenny,  the  power-loom,  and 
the  factory  system  possible. 

If  we  pass  from  Europe  to  America  we  shall  find  that  social 
progress  has  taken  place  in  the  order  and  in  accordance  with  the 
same  general  principle  as  in  England.  The  most  superficial 
acquaintance  with  the  history  of  the  United  States  is  sufficient  to 
show  that  our  republican  institutions  are  the  consequence,  and 
not  the  cause,  of  our  material  prosperity.  The  Republic  was 
born  of  the  social  and  intellectual  character  growing  out  of  a 
long  period  of  previous  industrial  prosperity,  and  this  prosperity 
was  due  to  causes  long  ante-dating  the  slightest  observable 
democratic  tendency  in  our  political  institutions. 

The  comparative  prosperity  which  prevailed  in  the  American 
Colonies  for  three  quarters  of  a  century  immediately  preceding 
the  Revolution  is  shown  by  the  fact  that  wages  were  most  of  the 
time  one  third  higher,  and  the  price  of  provisions  very  much  lower, 
here  than  in  England.  In  describing  the  industrial  condition  of 
the  American  people  during  that  period,  Adam  Smith  says  : 
"  Labor  is  there  so  well  rewarded,  that  a  numerous  family  of 
children,  instead  of  being  a  burden,  is  a  source  of  opulence  and 
prosperity  to  the  parents.  The  labor  of  each  child,  before  it  can 
leave  the  house,  is  computed  to  be  worth  a  hundred  pounds  clear 
gain  to  them."  In  1770  the  wages  of  carpenters,  masons,  etc., 
in  London  (which  is  always  twenty-five  to  thirty  per  cent,  higher 
than  in  the  country),  were  two  shillings  and  six  pence  a  day,1 
while  at  the  same  date  in  New  York,  ship  carpenters  received 
"  six  shillings  and  six  pence  sterling,  and  journeymen  tailors  two 
shillings  and  ten  pence  sterling  " a  ;  and,  adds  the  same  writer, 
"  the  price  of  provisions  is  everywhere  in  North  America  much 
lower  than  in  England." 

This  industrial  prosperity  made  the  development  of  the  social 
and  intellectual  character  of  the  people  inevitable.  Consequently 

1  These  prices  were  paid  at  Greenwich  Hospital  from  1830  to  1770,  and  are 
taken  from  the  records  of  that  institution. 

2  Smith's  "  Wealth  of  Nations,"  Book  I.,  chapter  viii.,  p.  54. 


FRENCH  AND  AMERICAN  REVOLUTIONS.  59 

the  necessary  intelligence  and  force  of  character  had  been  created 
to  successfully  resist  the  permanent  adoption  of  the  Stamp  Act 
(1765),  and  it  was  repealed  the  next  year.  The  opposition  to 
this  measure  did  not  arise  from  the  poverty  or  hardship  it  entailed 
upon  the  people,  but  from  the  injustice  of  the  principle  it  involved. 
The  same  year  in  which  the  Stamp  Act  was  repealed  in  England 
the  "  Declaratory  Act "  was  adopted,  insisting  that  the  king  and 
Parliament  "  had  the  absolute  right  to  make  laws  binding  the 
colonies  and  the  American  people  in  all  things  whatsoever." 
The  endeavor  to  enforce  this  principle  rekindled  the  flame  of 
resistance  in  this  country  and  gave  rise  to  the  effective  cry  that 
"  taxation  without  representation  is  robbery."  This  led  (1767) 
to  the  policy  of  excluding  (boycotting)  English  goods, — which 
resulted  (1770)  in  the  throwing  of  tea  into  Boston  Harbor, — and 
finally  culminated  (1776)  in  the  Declaration  of  Independence,  a 
successful  revolution,  and  the  establishment  of  the  Republic. 
Thus,  instead  of  the  Revolution  being  a  desperate  struggle  against 
industrial  degradation,  it  was  a  bold,  high-minded  assertion  of 
political  principles,  sustained  by  the  superior  character  conse- 
quent upon  the  previous  industrial  prosperity.  This  explains 
the  important  difference  between  the  character  and  result  of  the 
French  and  American  Revolutions. 

For  a  century  previous  to  their  great  Revolution  the  people  of 
France  were  in  a  state  of  almost  indescribable  poverty  and  social 
degradation,  and  their  struggle  was  for  material  existence  only. 
The  natural  consequence  was  that  they  were  much  more  barbar- 
ous in  their  methods  and  the  effects  were  much  less  beneficial  on 
this  account.  The  American  Revolution  resulted  in  establishing 
the  most  liberal  and  democratic  republic  the  world  has  ever  seen, 
while  that  of  France  did  little  more  than  exchange  one  despot 
for  another.  Our  Republic  was  not  only  born  of  industrial  pros- 
perity, but  its  success  and  permanence  are  due  to  the  same  cause. 
The  industrial  prosperity  of  our  people  during  the  first  seventeen 
or  twenty  years  of  the  Republic  was  phenomenal.  By  the  end  of 
the  first  decade  our  exports  had  risen  from  nineteen  to  ninety- 
four  millions  of  dollars  and  the  revenue  had  increased  from  five 
to  thirteen  millions.  Nor  was  this  prosperity  in  any  sense  due 
to  our  republican  institutions  ;  it  was  the  result  of  causes  which 
operated  exclusively  in  Europe.  During  the  first  quarter  of  a 


60  GROWTH  OF  AMERICAN  INDUSTRY. 

century  after  the  outbreak  of  the  French  Revolution  (1789  to 
1815)  events  in  Europe  almost  uninterruptedly  conspired  to  pro- 
mote the  industrial  prosperity  of  the  young  Republic. 

The  French,  English,  Dutch,  Spanish,  and  Portuguese  merchant- 
men were  practically  driven  from  the  seas  by  the  campaigns  of 
Napoleon.  The  United  States  was  in  an  excellent  condition  to 
supply  vessels  to  take  their  places  and  her  neutrality  secured  her 
the  opportunity.  By  this  means  the  Republic  obtained,  for  the 
time  being,  a  practical  monopoly  of  the  ocean  freight  of  the  world. 
All  that  was  necessary  for  the  small  capitalist  of  America  to  do,  in 
order  to  rapidly  acquire  wealth,  was  to  obtain  a  cargo  of  Ameri- 
can products  at  normal  prices  and  sail  to  the  West  Indies,  or  to 
Europe,  under  the  American  flag.  For  several  years  Europe  was 
supplied  with  American  produce  ;  Russia,  Sweden,  Germany,  and 
even  England  often  availed  themselves  of  the  service  of  the 
American  merchants  for  exchange  and  freight.  The  effect  upon 
the  trade  and  industry  of  the  Republic  may  be  seen  from  the  fact 
that,  in  1789  the  aggregate  capacity  of  American  shipping  was 
only  21,000  tons,  while  in  1808  it  had  increased  to  110,000  tons. 

Another  European  influence  which  greatly  contributed  to  the 
growth  of  American  industry  was  the  discovery  of  the  spinning- 
jenny  and  the  power-loom  (1767-1785),  and  the  inauguration  of 
the  factory  system  in  England,  which  created  a  great  demand  for 
American  cotton. 

In  1791,  the  entire  cotton  crop  of  America  was  only  2,ooo,oop 
pounds,  and  by  the  close  of  the  century  the  annual  product  was 
over  48,000,000  pounds.  In  1795,  the  English  consumption  of 
American  cotton  was  5,000,000  pounds  ;  in  1820  it  was  90,000,000 
pounds  ;  in  1840  it  was  488,000,000  pounds  ;  and  by  1860  it  was 
over  1,100,000,000  pounds  a  year.  This  prosperity  was  the  one 
great  fact  which  saved  the  Republic  from  going  to  pieces  under 
the  terrible  strain  to  which  it  was  subjected  by  foreign  wars  and 
internal  dissensions  during  the  first  years  of  its  history. 

Therefore,  instead  of  attributing  our  remarkable  industrial 
prosperity  and  superior  civilization  to  our  republican  institutions, 
as  is  the  custom  of  our  statesmen,  journalists,  and  public  teachers 
generally,  the  truth  is  that  our  republican  institutions  are  the 
natural  result  of  industrial  prosperity  and  consequent  superior 
civilization. 


PART  IT. 
THE  PRINCIPLES  OF  ECONOMIC    PRODUCTION. 


CHAPTER  I. 
WEALTH  AND  THE  LAW  OF  ITS  PRODUCTION. 

SECTION  I. —  The  Nature  and  Meaning  of  Wealth. 

IN  considering  the  laws  which  govern  the  economic  production 
of  wealth,  it  will  be  necessary  to  explain  :  (i)  wealth,  (2)  produc- 
tion, (3)  the  necessary  factors  in  production,  (4)  the  economic 
importance  of  these  factors,  (5)  the  principle  upon  which  they 
become  active  in  production. 

Unfortunately  the  term  wealth  has  no  uniformly  accepted 
signification.  There  is  no  general  agreement,  even  among  the 
best  writers,  as  to  what  the  word  wealth  means.  John  Stuart 
Mill,  after  saying,  "  Every  one  has  a  notion  sufficiently  correct 
for  common  purposes- of  what  is  meant  by  wealth,"  within  his  first 
two  chapters  gives  several  definitions  of  wealth,  all  of  which  are 
essentially  different.  For  example,  he  says  '  :  "  Every  thing 
forms  therefore  a  part  of  wealth  which  has  a  power  of  purchas- 
ing "  ;  and  adds  a  :  "In  the  wealth  of  mankind  nothing  is  included 
which  does  not  of  itself  answer  some  purpose  of  utility  or 
pleasure."  But  many  things  have  "  a  power  of  purchasing" 
which  in  themselves  "  answer  no  purpose  of  utility  or  pleasure." 
A  dollar  bill,  a  bank  check,  a  mortgage  deed,  a  trade  privilege, 
etc.,  in  themselves  "  answer  "  no  "  purpose  of  utility  or  pleasure," 
but  they  constantly  have  a  "  power  of  purchasing."  In  fact,  it  is 
only  because  they  can  be  exchanged  for  things  that  will  in  them* 
selves  "  answer  some  purpose  of  utility  or  pleasure  "  that  any  one 
cares  to  possess  them.  Again  he  says 8 :  "  It  is  essential  to  the 
idea  of  wealth  to  be  susceptible  of  accumulation."  Services  are 

1  "  Principles  of  Political  Economy,"  vol.  i.,  p.  24. 

*  Ibid,  pp.  24,  25.  3  Ibid.,  p.  75. 

63 


64  CONFUSING  DEFINITIONS. 

obviously  incapable  of  being  accumulated.  The  products  of 
labor  may  be  stored  up,  but  not  so  of  labor  itself.  To-day's 
service,  whether  of  the  highest  functionary  or  of  the  lowest 
laborer,  must  be  used  to-day  or  it  is  lost  forever  ;  hence,  accord- 
ing to  this  definition,  labor  cannot  be  wealth, — although  it  is 
about  the  only  "power  of  purchasing"  the  masses  possess. 
Again  he  says  ' :  "  The  skill  amd  the  energy  and  perseverance  of 
the  artisans  of  a  country  are  reckoned  part  of  its  wealth  no  less 
than  their  tools  and  machinery."  And  on  the  next  page  he 
throws  this  into  confusion  by  saying 2 :  "  I  shall  therefore  in  this 
treatise,  when  speaking  of  wealth,  understand  by  it  only  what  is 
called  material  wealth."  With  such  conflicting  definitions  as  these 
from  Mill,  it  can  hardly  be  a  matter  of  surprise  that  confusion 
should  pervade  the  writings  of  less  able  thinkers  and  more 
careless  writers. 

Walker  says  * :  "  Wealth  comprises  all  articles  of  value  and 
nothing  else."  If  this  definition  is  correct,  then  that  of  Mar- 
shall,4 which  includes  "  human  faculties,  habits — physical,  mental, 
and  moral,"  as  wealth,  cannot  be  accepted,  because  the  essential 
condition  of  value  is  exchange,  which  involves  transferableness. 
Human  faculties  and  habits  are  inseparable  attributes  of  individ- 
ual character,  and  are  absolutely  non-transferable,  and  conse- 
quently cannot  have  value.  We  can  influence  others  by  our 
faculties  and  habits,  but  we  can  no  more  transfer  them  to  another 
than  we  can  give  him  the  color  of  our  hair.  To  treat  human 
faculties  as  wealth  is  to  confound  wealth  with  man.  Moral  and 
mental  qualities  indicate  rather  what  a  man  is  than  what  he  has. 
To  thus  confound  wealth  with  man  tends  to  increase  the  confu- 
sion, rather  than  to  clarify  the  conception,  of  both  wealth  and  its 
relation  to  man. 

Such  is  the  confusion  on  this  point  that  some  writers  have 
questioned  the  wisdom  of  using  the  term  wealth.  Perry  actually 
proposes  to  expunge  it  from  the  economic  vocabulary,5  and 
recommends  as  a  substitute  the  word  property  ;  but  it  is  difficult 
to  see  in  what  sense  this  would  be  an  improvement.  It  is  as 
necessary  to  clearly  define  the  meaning  of  the  word  property 

1  "  Principles  of  Political  Economy,"  vol.  i.,  p.  75. 

1  Ibid.,  p.  76.  4  "Economics  of  Industry,"  p.  6. 

1  "Political  Economy,"  p.  5.  *  "  Political  Economy,"  p.  98. 


ATTRIBUTES  OF  WEALTH.  65 

as  it  is  the  term  wealth,  and  all  the  difficulties  which  beset  the 
use  of  the  former  term  would  be  associated  with  the  latter. 
"That  is  property,"  says  Perry,1  "which  can  be  bought  and 
sold."  But  would  it  not  be  just  as  easy,  simple,  and  correct  to 
say — that  is  wealth  which  can  be  bought  and  sold  ?  Manifestly, 
nothing  would  be  gained  to  the  science  by  merely  substituting  the 
word  property  for  wealth. 

Popular  phrase  is  always  the  most  direct  avenue  to  the  public 
mind,  and  hence  should  never  be  abandoned  except  a  manifestly 
greater  directness  of  expression  and  clearness  of  thought  can  be 
obtained  by  so  doing.  Common  language  has  universally  appro- 
priated the  term  wealth  to  convey  the  idea  of  something  which 
gratifies  human  wants.  Nor  does  there  appear  to  be  any 
scientific  necessity  for  employing  a  new  word  to  express  that 
idea.  All  that  is  required  for  the  purposes'  of  correct  reasoning 
and  clear  statement  is,  that  the  term  shall  be  so  defined  as  to  ex- 
press all  that  is  included  in  the  idea,  without  embracing  any  thing 
inconsistent  with  it. 

If  we  examine  the  characteristic  attributes  of  wealth,  we  shall 
find  that  such  a  definition  is  not  only  possible,  but  entirely  feasi- 
ble. In  the  first  place,  wealth  is  essentially  a  social  phenomenon  ; 
nothing  can  be  wealth  which  is  not  subject  to,  and  conditioned 
by,  social  influences.  In  other  words,  wealth  must  be  something 
peculiar  to  man  as  a  social  being,  as  well  as  a  mere  animal  organ- 
ism. Therefore,  whatever  exists  as  the  result  of  purely  cosmic 
influences,  whether  chemical,  mineral,  vegetable,  or  animal,  can- 
not be  wealth  until  it  comes  within  the  pale  of  social  influences. 
Second,  in  order  to  constitute  an  object  wealth,  it  must  possess 
the  capacity  of  gratifying  some  human  want  or  desire.  In  other 
words,  it  must  possess  utility.  Third,  it  must  be  socially  appro- 
priable ;  that  is  to  say,  it  must  be  capable  of  being  adapted 
to  the  exigencies  of  social  life,  and  hence  must  be  transferable, — 
susceptible  of  exchange.  Fourth,  in  order  to  possess  these 
qualities,  it  must  have  an  objective  existence  ;  that  is  to  say, 
it  must  be  something  external  to  man — a  part  of  his  environment. 

Therefore,  for  an  object  to  be  wealth  it  must  be  at  once  social, 
useful,  transferable,  and  material.  There  are  many  things  which 
possess  some  of  these  qualities,  but  lack  others,  and  hence  can- 

'"  Political  Economy,"  p.  99. 


66  HUMAN  FACULTIES  NOT  WEALTH. 

not  be  classed  as  wealth.  Thus,  for  example,  the  sun,  air,  gravi- 
tation, and  other  forces  are  useful  and  objective,  but  they  are 
neither  social  nor  transferable  ;  that  is  to  say,  they  are  the 
product  of  automatic  cosmical,  instead  of  social,  forces,  and 
hence  are  equally  in  the  possession  of  all  without  effort.  Thus 
they  are  not  only  independent  of  social  influences,  but  they  are 
unappropriable,  and  consequently  incapable  of  exchange. 

Man's  physical  and  mental  faculties,  and  also  his  moral  quali- 
ties, are  highly  useful  to  himself  and  to  society  :  they  are  subject 
to,  and  regulated  by,  social  influences,  but  they  have  no  objective 
existence,  and  hence  cannot  be  transferable.  They  may  be 
higher  and  better  than  wealth,  but  they  are  not  wealth,  because 
they  lack  one  of  the  essential  attributes  of  wealth.  In  short,  they 
are  attributes  of  man's  character  and  not  the  external  objects  with 
which  he  gratifies  his  wants  and  desires. 

While  this  view  of  wealth  excludes  the  personal  qualities  which 
orthodox  economists  have  included — without  being  able  to  give 
a  sufficient  reason  for  so  doing — it  includes  other  things  which 
they  excluded.  They  have  made  it  "  essential  to  the  idea  of 
wealth  to  be  susceptible  of  accumulation." '  Hence  they  have 
concluded  that  all  the  efforts  of  teachers,  ministers,  lecturers, 
singers,  actors,  showmen,  etc.,  are  non-productive "  — because 
what  they  produce  cannot  be  accumulated  ;  that  is,  it  cannot  be 
stored  up  and  subsequently  enjoyed  or  exchanged.  This  has 
led  to  that  erroneous  doctrine  of  unproductive  labor  which  per- 
vades so  much  of  English  economic  literature.  It  is  not  neces- 
sary to  constitute  an  object  wealth  that  it  shall  be  able  to  main- 
tain all  the  attributes  of  wealth  for  an  extended  period.  If  an 
object  has  all  the  qualities  and  fills  all  the  functions  of  wealth  at 
any  one  time,  it  is  wealth.  An  object  is  not  precluded  from  being 
wealth  to-day,  because  it  fails  to  fill  that  function  to-morrow,  or 
next  month,  or  next  year.  That  is  simply  a  question  of  degree 
of  durability,  and  not  a  question  as  to  wealth  per  se. 

The  product  of  the  minister,  the  musician,  the  lecturer,  the 
actor,  etc.,  in  the  form  of  a  sermon,  song,  lecture,  or  drama,  fills 

1  Mill's  "  Principles  of  Political  Economy,"  vol.  i.,  chap.  iii. 

*  "  Wealth  of  Nations,"  Book  II.,  chap.  iii.  Mill's  "  Principles  of  Political 
Economy,"  vol.  i.,  pp.  77,  78.  Marshall's  "Economics  of  Industry,"  pp.  18, 
19. 


DEFINITION  OF  WEALTH.  6? 

all  the  functions  of  wealth.  It  is  social,  because  it  is  entirely  the 
product  of  human  influences.  It  is  useful,  because  it  gratifies 
human  wants  and  desires.  It  is  transferable,  because  it  is  capable 
of  being  distributed  to  an  unlimited  number  of  people.  It  is  ob- 
jective, because  it  exists  entirely  in  the  environment  of  those  who 
produce  it  and  those  who  receive  it.  It  is  not  capable  of  being 
redistributed,  because  it  loses  all  its  wealth  attributes  within  a  few 
seconds  after  its  production.  But,  as  before  remarked,  that  is 
simply  a  question  of  duration.  The  susceptibility  to  re-distribu- 
tion is  not  a  necessary  quality  of  wealth,  it  is  only  a  quality  of 
some  kinds  of  wealth.  Therefore  we  may  say  that  the  product 
of  this  class  is  not  only  wealth,  but  much  of  it  is  vastly  more  so- 
cializing and  civilizing  in  its  influences  than  many  forms  of 
wealth  which  are  susceptible  of  redistribution,  long  duration,  and 
extensive  accumulation. 

Wealth,  then,  must  have  an  objective  materiality  and  possess 
potential  transferable  utility — the  actualization  of  which  is  de- 
pendent upon  social  or  human  forces  ;  or,  to  be  more  specific, 
the  term  wealth  includes  every  thing  capable  of  serving  human 
wants  and  desires,  the  utility  of  which  is  the  result  of  human 
effort. 

An  able  critic,  to  whom  this  chapter  was  submitted  in  manu- 
script asks  :  "  If  a  shower  of  manna  fell  from  Heaven,  or  an 
island  of  coral  rose  from  the  sea,  or  a  spring  of  healing  mineral 
water  started  from  the  hill,  or  the  sea  washed  up  a  mountain  of 
pearls,  would  they  not  be  wealth  ? "  Certainly  not,  they  would 
possess  some  of  the  qualities  of  wealth,  they  would  have  objec- 
tive materiality  and  they  would  be  appropriable,  but  they  would 
possess  only  potential  utility — to  actualize  which  would  require 
the  human  effort  necessary  to  put  them  into  the  possession 
of  those  whose  wants  they  would  supply.  Until  utility  is 
actualized,  it  is  as  though  it  did  not  exist.  The  vast  coal- 
beds  of  China  are  not  wealth  to  the  Chinese,  and  the  gold 
in  California  and  the  iron  in  Pennsylvania  was  not  wealth 
to  the  roving  Indians.  Natural  or  cosmic  forces  alone  can 
never  produce  wealth.  The  most  they  ever  do  is"  to  make  the 
production  of  wealth  by  man  possible.  Therefore,  every  thing 
may  be  regarded  as  wealth,  the  utility  of  which  is  actualized  by 
human  effort. 


68  PRODUCTION  AND  PRODUCERS. 

SECTION  II. — Production  and  Producers — Their  Economic 

Meaning. 

The  terms  production  and  producers  have  been  scarcely  more 
fortunate  in  their  treatment  at  the  hands  of  the  economists  than 
has  wealth.  While  nearly  all  writers  use  them,  they  seem  to  take* 
the  liberty  of  expanding  or  contracting  their  signification  at  will. 
The  French  physiocrats  limited  the  term  production  to  efforts 
devoted  to  the  cultivation  of  land — that  is,  extracting  material 
commodities  from  the  earth.  All  efforts  devoted  to  manufacture, 
transportation,  and  commerce  were  regarded  by  them  as  unpro- 
ductive labor. 

Adam  Smith  vigorously  attacked  this  idea  as  being  too 
narrow. '  With  great  force  and  clearness  he  showed  that  efforts 
devoted  to  manufacture,  transportation,  and  all  the  various 
phases  of  trade  and  commerce  are  as  truly  productive  as  are 
those  applied  to  agriculture  ;  but  he  insisted  that  armies,  navies, 
courts,  and  government  officials,  together  with  all  intellectual  and 
literary  efforts,  were  non-productive  and  a  burden  upon  "the 
produce  of  other  men's  labor."4 

Mill,  who  modernized  Adam  Smith,  extends  this  definition 
sufficiently  to  make  it  include  government  officials  in  the  pro- 
ductive class,  on  the  ground  that  :  "  The  labor  of  officers 
of  government  in  affording  the  protection  which,  in  some 
manner  or  other,  is  indispensable  to  the  prosperity  of  industry, 
must  be  classed  as  productive  even  of  material  wealth."  :  Be- 
yond this,  however,  he  adheres  to  the  definition  of  Adam  Smith, 
and  classes  all  efforts  as  unproductive  that  do  not  produce 
wealth  which  can  be  literally  accumulated  and  inventoried. 
"All  labor,"  he  says,4  "according  to  our  present  definition,  must 
be  classed  as  unproductive  which  terminates  in  a  permanent 
benefit,  however  important,  provided  that  an  increase  of  material 
products  form  no  part  of  that  benefit.  .  .  .  Unproductive 
may  be  as  useful  as  productive  labor;  it  may  be  more  useful 
even  in  point  of  permanent  advantage.  ...  In  any  case 
society  or  mankind  grow  no  richer  by  it,  but  poorer." 

To  say  the  least,  this  definition  of  production  is  very  con- 
fusing. For  while  it  recognizes  the  creation  of  utility  as  essential 

1  "  Wealth  of  Nations,"  Book  IV.,  ch.  ix.  '  Ibid.  Book  II.,  ch.  iii. 

3  Mill's  "  Principles  of  Political  Economy,"  vol.  i.,  p.  76. 

4  Ibid.,  pp.  77,  78. 


NON-PRODUCTIVE  LABOR    THEORY.  69 

to  production,  it  declares  a  large  class  of  efforts  unproductive 
which  produce  the  highest  kind  of  utility.  The  efforts  of  minis- 
ters, lecturers,  actors,  musicians,  and  their  class,  not  only  create 
utility,  but  the  kind  of  utility  they  produce  serves  a  very  high 
order  of  human  desires  ;  indeed,  they  are  the  most  effective  of 
all  kinds  of  effort  in  producing  the  new  wants  which  form  the 
very  basis  for  the  production  of  material  things.  If  the  efforts 
of  government  officials  are  productive  because  they  tend  to 
increase  the  security  of  property,  and  thereby  indirectly  aid 
in  the  gratification  of  human  wants,  surely  the  efforts  of  the 
intellectual  classes,  which  directly  serve  a  much  higher  class  of 
wants,  are  still  more  entitled  to  that  designation. 

Moreover,  if  the  philosophers,  scientists,  and  teachers  were 
mere  economic  parasites  on  society,  and  did  not  increase  enjoya- 
ble utility,  the  tendency  of  progress  would  be  to  eliminate  them 
from  social  life.  The  fact  is  exactly  the  reverse.  The  more 
society  becomes  acquainted  with  the  influences  which  promote 
the  gratification  of  its  desires,  the  more  this  class  is  increased. 
A  definition  according  to  which  politicians,  soldiers,  policemen, 
and  jailers  are  productive  helpers  to  society,  and  scientists, 
philosophers,  poets,  teachers,  ministers,  actors,  and  musicians 
are  unproductive  burdens,  should  carry  with  it  its  own  con- 
demnation. To  assume  that  mere  parasitic  influences  increase 
as  the  knowledge  of  the  means  of  gratifying  human  desires 
becomes  more  perfect,  is  a  violation  of  the  fundamental  idea 
of  production,  and  contrary  to  the  whole  principle  of  self-interest 
underlying  all  economic  movement. 

There  are  others  who,  while  extending  the  definition  of  wealth 
to  the  products  of  those  workers  whose  efforts  do  not  increase 
the  actual  quantity  of  things,  limit  the  term  production  to  those 
efforts  which  are  put  forth  for  pay.  Thus  any  effort  is  unpro- 
ductive, however  much  utility  it  may  produce,  if  the  product  is 
not  offered  for  sale.  "A  producer"  says  Perry,1  "is  any  person 
•who gets  any  thing  ready  to  sell  and  sells  it."  "  One  of  my  boys," 
he  adds,2  "is  now  playing  the  piano  in  the  parlor.  It  is  effort 
for  him — irksome  effort,  but  as  he  has  no  intention  to  ever  sell 
his  skill  on  that  instrument  it  cannot  be  called  productive  effort. 
It  is  effort  put  forth  for  altogether  other  than  commercial  reasons. 

1  "  Political  Economy,"  p.  166.  *  Ibid.,  p.  167. 


70  ALL    USEFUL  LABOR  PRODUCTIVE. 

The  effort  of  his  music-teacher,  however,  who  comes  here  to  give 
him  lessons,  is  productive  effort,  inasmuch  as  it  is  put  forth  solely 
with  reference  to  a  sale." 

According  to  this  definition,  whether  a  given  class  of  effort  is 
productive  or  unproductive  does  not  depend  upon  whether  it 
creates  utility,  but  whether  or  not  it  is  sold.  Thus,  if  a  person 
raises  his  own  provisions,  or  makes  his  own  clothes,  he  is  not  a 
producer  ;  and  if  an  artist  paints  a  picture,  or  a  poet  composes  a 
song,  or  a  musician  plays  Beethoven's  Ninth  Symphony  for  his 
own,  or  his  friend's,  instruction  without  pay,  it  would  be  unpro- 
ductive. But  if  they  charged  for  it,  then  it  would  be  productive. 

The  estimation  in  which  a  doctrine  should  be  held  which 
teaches  that  those  who  supply  their  own  wants,  or  gratuitously 
help  to  supply  those  of  others,  are  non-producers,  is  obvious. 
The  idea  so  prevalent  in  the  public  mind,  and  especially  among 
the  wage-workers,  that  middle-men  are  non-producers,  and  that 
interest,  profits,  and  rent  are  robbery,  is  a  legitimate  part  of  the 
self-contradictory  doctrine  of  non-productive  useful  effort. 

If  we  accept  the  definition  of  wealth  stated  in  the  last  section, 
we  shall  see  that  all  efforts  are  properly  productive  which  directly 
or  indirectly  tend  to  impart  to  matter  any  of  the  attributes,  or 
surround  it  with  any  of  the  conditions,  which  make  it  available 
for  human  wants  and  desires.  The  desires  which  induce  pay  for 
the  services  of  the  actor  or  musician,  minister,  lecturer,  scientist 
or  statesman,  are  as  purely  economic  as  those  which  make  it 
profitable  for  the  farmer  to  raise  wheat  and  wool,  or  the  miller 
and  manufacturer  to  prepare  them  for  final  use.  It  is  fallacious 
to  the  last  degree  to  assume  that,  because  the  results  of  any 
intellectual  effort  cannot  be  measured  by  inches  or  pounds,  they 
are  unproductive. 

Much  of  the  plausibility  of  this  popular  error  arises  from 
viewing  the  question  in  its  most  complex  aspect,  thus  making  the 
inter-relation  of  the  various  efforts  more  difficult  to  observe.  If 
we  examine  the  process  of  production  in  its  simplest  stages,  we 
shall  soon  see  that  the  doctrine  of  unproductive  labor  is  an 
attempt  to  deal  with  an  economic  myth. 

For  example,  let  us  take  the  production  of  flour.  In  the 
simplest  stages  of  society  we  find  that  man  plants  and  harvests 
the  wheat,  grinds  it  into  flour,  and  eats  it  all  himself.  When  the 


DIFFERENTIATION  OF  PRODUCTIVE  EFFORT.         /I 

process  is  complete  the  wheat  has  filled  the  function  for  which  it 
was  produced,  it  has  gratified  human  wamt.  In  this  case  it  was 
produced  and  consumed  by  the  same  person.  Clearly,  there  were 
no  parasites  here  ;  all  that  was  produced  belonged  to  him  who 
produced  it.  Every  thing  that  was  necessary  to  obtain  the  bread 
in  this  case  was  a  part  of  its  production. 

Let  us  suppose  that  man  begins  to  produce  flour  for  his  neigh- 
bor, and  the  neighbor  to  produce  shoes  for  him.  By  this  slight 
degree  of  specialization  of  effort,  the  process  becomes  a  little 
more  involved.  It  is  now  necessary  for  him  to  take  the  flour  to 
his  neighbor,  and  for  his  neighbor  to  bring  the  shoes  to  him. 
This  is  clearly  as  much  a  part  of  the  production  as  it  was  to  take 
it  from  his  own  field  to  his  hut.  But  suppose  that  another  man 
will  agree  to  devote  his  whole  time  to  carrying  the  flour  and  allow 
the  first  man  to  devote  his  time  exclusively  to  raising  and  grind- 
ing it  ;  the  process  will  now  become  still  more  involved,  while  it 
will  only  cover  the  same  article  as  before.  If  the  new  man 
receives  a  portion  of  the  flour  for  his  part  of  the  process,  will  he 
be  a  parasite  upon  the  man  who  raises  and  grinds  it,  or  upon  the 
distant  consumer  who  receives  it  ?  Certainly  not  !  The  second 
man  simply  does  a  part  of  the  work  that  the  first  man  has 
previously  done,  and  by  this  division  of  labor  they  are  able 
to  produce  more.  If  we  follow  the  process  a  little  further,  we 
find  the  man  who  carries  the  flour  devising  means  to  transport  it 
in  large  quantities — instead  of  taking  it  in  small  quantities  to  suit 
the  individual  consumer  ;  but  in  order  to  make  the  flour  available 
to  individual  consumers,  he  has  to  divide  it  into  small  quantities 
to  suit  their  convenience.  At  this  juncture  a  fourth  man  enters, 
and  volunteers  to  receive  it  in  bulk,  and  to  deliver  it  to  the  con- 
sumers in  convenient  quantities  to  suit  their  wants.  Here  the 
process  becomes  still  more  complex,  but  nothing  is  added.  The 
fourth  man  requires  a  part  of  the  flour  for  what  he  does,  but  this 
is  not  an  added  burden  to  the  man  who  grows  the  wheat,  or  to 
those  who  use  it,  because  the  only  reason  he  does  what  the  other 
man  formerly  did  is  because  he  can  do  it  cheaper  than  the  other 
could.  Indeed,  the  only  reason  any  one  is  permitted  to  enter  the 
process  at  any  stage  is  because  it  is  seen  that,  by  this  means, 
each  can  obtain  more  of  the  aggregate  utility  for  less  effort  and 
sacrifice. 


72  CYCLE   OF  PRODUCTIVE  EFFORT. 

If  we  follow  the  process  until  a  million  men  are  added,  the 
same  will  be  true  in  every  stage.  If,  at  any  time,  the  added  man 
results  in  lessening  the  relative  utility  which  accrues  to  any  of  the 
existing  producers,  they  will  return  to  the  previous  method  of 
production  and  do  without  him.  Thus  the  wholesaler,  the  drum- 
mer, the  retailer,  the  shipper,  the  banker,  or  broker,  all  fill  a 
useful  function  in  the  process  of  producing  the  flour.  Until  they 
can  do  this  no  one  will  employ  them  ;  and  just  as  soon  as  they 
cease  to  do  it  every  one  is  interested  in  eliminating  them. 

Again,  as  the  process  increases  in  complexity,  new  elements 
arise.  As  wealth  is  produced  on  a  larger  scale  it  is  necessarily 
held  in  large  quantities  at  the  factories,  and  at  the  various  whole- 
sale and  retail  depots  on  its  way  to  the  consumer.  With  thjs 
increased  accumulation  of  commodities  the  risks  of  loss,  by  fire 
and  other  causes,  necessarily  increase.  Hence,  in  order  to 
secure  their  safe  delivery  to  the  consumer  (without  which  the 
whole  process  would  be  void),  it  is  necessary  to  have  policemen 
to  guard  them  from  thieves  and  incendiaries — another  differentia- 
tion, which  involves  legislators,  courts  of  justice,  lawyers,  etc. 
At  last,  in  order  to  further  protect  the  aggregate  community 
against  dangers  of  molestation  by  foreign  countries,  and  for  the 
protection  of  trade  between  countries  (at  least,  until  the  moral 
quality  of  the  race  is  more  highly  developed),  an  army  and  navy 
are  necessary — the  administration  of  which  makes  a  general 
government  indispensable. 

Thus  we  see  that  not  only  are  ministers,  singers,  actors,  etc., 
productive  factors  in  the  community,  but  the  policemen,  lawyers, 
doctors,  judges,  soldiers,  sailors,  and  statesmen  are  also  producers. 
In  other  words,  every  thing  that  promotes  the  raising  of  wheat  in 
Dakota,  or  its  safe  delivery  as  flour  into  the  pantry  of  the  con- 
sumer, or  in  any  way  aids  in  compassing  the  satisfaction  of  any 
other  human  want — physical,  mental,  moral,  political,  esthetic,  or 
religious, — is  properly  production. 

SECTION    III. —  The    Necessary  Factors   in  Production   and 
Their  Relative  Economic  Efficiency. 

The  factors  which  participate  in  the  production  of  wealth  may 
be  briefly  stated  as  Land,  Labor,  and  Natural  Forces.  By  the 
first  is  meant  the  earth's  surface  ;  the  second,  human  energy  ; 


FACTORS  IN  PRODUCTION.  73 

and  the  third,  cosmic  forces — including  all  natural  agencies 
outside  of  man  and  land.  Land  may  be  regarded  as  representing 
passive  material,  and  the  other  two  as  the  active  forces  which 
operate  upon  it  in  producing  wealth. 

Without  the  presence  of  all  these  factors  wealth  cannot  be 
obtained.  They  are  equally  essential  to  the  simplest  and  to  the 
most  complex  methods  of  production.  Land  being  the  passive 
element,  the  only  factors  which  actively  participate  in  production 
are  the  human  and  the  natural  forces.  It  may  be  remarked,  how- 
ever, that  there  are  some  natural  forces — such  as  the  light  and 
heat  of  the  sun,  gravitation,  atmospheric  air,  etc. — that  are 
gratuitous,  being  ever  present  and  ever  active,  even  under 
the  simplest  conditions  of  land-labor.  But  there  are  certain 
other  natural  forces — such  as  steam,  electricity,  coal,  wood,  iron, 
etc. — which,  as  factors  in  production,  are  not  gratuitous.  For 
instance,  steam  can  only  be  made  to  do  service  in  production 
when  it  is  confined  in  a  boiler  and  applied  to  an  engine  ;  and  this 
makes  the  use  of  coal,  iron,  and  other  materials  necessary.  This, 
in  turn,  cannot  be  accomplished  without  a  considerable  amount 
of  skill  and  energy  having  been  previously  devoted  to  the  con- 
struction of  engine,  boilers,  etc.  The  wealth  thus  employed  is 
distinguished  from  that  which  is  used  for  the  direct  gratification 
of  human  wants,  and  is  called  capital. 

This  brings  us  to  another  economic  term  which  has  been  sub- 
jected to  a  great  variety  of  definitions.  Capital  is  generally  used 
to  express  the  means  employed  in  production,  but  because  man's 
faculties  are  constantly  employed  in  the  production  of  wealth, 
some  writers  have  included  them  in  the  term  capital.  Hence  we 
frequently  hear  such  expressions  as  :  "  The  laborer's  skill  is  his 
capital."  '  It  would  be  difficult  to  conceive  of  a  more  misleading 

"  Capital  may  be  said  to  be  any  thing  which  a  man  can  trade  with  or  which 
he  can  turn  to  the  purposes  of  profit,  or  which  helps  him  to  gain  an  income — any 
property  or  quality  he  possesses  which  enables  him  to  increase  his  wealth. 
Thus  the  tools  of  an  artisan,  together  with  his  skill  and  industry, 
form  his  capital ;  the  education  and  books  and  skill  of  a  physician  and  lawyer 
are  their  capital." — Macleod's"  Elements  of  Political  Economy, "p.  70.  "  Per- 
sonal wealth  consists  of  those  human  energies,  faculties,  and  habits,  physical, 
mental,  and  moral.  .  .  .  Almost  all  personal  wealth  is  or  may  be  per- 
sonal capital." — Marshall's  "  Economics  of  Industry,"  pp.  6  and  20.  See  also 
"Wealth  of  Nations,"  Book  II.,  chap.  i. 


74  NATURE   OF  CAPITAL. 

expression.  Instead  of  giving  any  definite  meaning  to  the  term 
capital,  it  deprives  it  of  all  special  significance  and  makes  capital 
and  labor  synonymous,  hence  rendering  the  discussion  of  their 
relation  logically  impossible. 

It  is  equally  misleading  to  speak  of  capital  as  "  stored  up  labor  " 
— a  mode  of  speech  commonly  indulged  in.  Labor  is  human 
energy,  and,  as  we  have  elsewhere  shown,1  can  never  be  stored  up 
in  any  thing  but  a  human  being,  and  only  to  a  very  limited  extent 
there.  It  is  because  the  laborer  cannot  store  his  labor — because 
he  can  never  sell  more  than  one  day's  service  in  a  day  ;  and  be- 
cause, if  he  does  not  sell  to-day's  labor  to-day,  it  is  lost  forever, 
that  enforced  idleness  has  such  terrors  for  him.  Nor  can  he  store 
up  his  labor  in  external  objects.  When  he  devotes  his  energies 
to  producing  an  article  he  does  not  impart  his  labor  to  it,  but  he 
expends  his  labor  upon  it,  and  as  human  force  it  is  gone  forever. 
Wealth  and  capital  in  every  form  and  under  all  conditions  are 
something  outside  of  and  subservient  to  man,  but  can  never  be  a 
part  of  him. 

There  are  two  states  in  which  wealth  may  exist  :  that  of  being 
produced,  and  that  of  being  consumed.  It  can  also  fill  two  func- 
tions :  that  of  serving  human  wants,  and  that  of  aiding  in  produc- 
tion. Hence  wealth  may  be  properly  divided  into  two  classes  : 
consumable  wealth,  and  productive  wealth.  It  is  the  latter  kind 
only  which  can  properly  be  called  capital. 

It  is  held  by  some  that,  as  land  is  a  means  of  producing  wealth, 
it  is  capital.8  There  is  a  certain  amount  of  plausibility  in  this  ; 
but  it  should  be  remembered  that  land  does  not  necessarily  pos- 
sess any  of  the  qualities  of  either  enjoyable  or  productive  wealth. 
It  is  only  when  labor,  or  capital  and  labor,  are  devoted  to  it  that 
it  can  either  serve  human  wants  or  assist  in  producing  consuma- 
ble commodities.  It  is  true  that,  when  land  has  by  this  means 
become  wealth,  it  may  also  become  the  means  of  procuring  more 
wealth,  and  in  that  sense  fill  the  function  of  capital. 

It  may  be  asked,  however,  if  all  other  wealth  becomes  capital 

1  "  Wealth  and  Progress,"  pp.  17,  18. 

3  "  By  much  the  largest  part  of  all  salable  land  is  nothing  more  nor  less  than 
capital.  Capital  is  some  product  reserved  as  a  means  of  further  production  ;  and 
valuable  land  is  always  a  product  of  labor  and  previous  capital  and  is  generally 
reserved  for  use  in  future  production  and  so  is  capital  under  the  definition." — 
Perry's  "  Political  Economy,"  p.  283. 


USE   OF   THE    TERM  CAPITAL.  75 

by  virtue  of  aiding  in  production,  why  is  not  all  productive  land 
capital  for  the  same  reason  ?  Strictly  speaking,  so  far  as  land  di- 
rectly serves  human  wants,  it  is  consumable  wealth,  and  so  far  as 
it  aids  in  production,  it  is  instrumental  wealth,  or  capital.  By 
making  this  technical  distinction  and  treating  certain  kinds  of 
land  as  capital  we  should  probably  add  to  the  confusion,  rather 
than  to  the  clearness,  of  economic  discussion. 

Therefore, — while  admitting  that  it  might  be  technically  correct 
to  regard  land,  under  certain  conditions,  as  capital,  and  the  re- 
turns from  it  as  profits, — for  the  sake  of  avoiding  any  unnecessary 
confusion,  I  shall  follow  the  example  of  Mill J  and  use  the  term 
capital  as  expressing  all  instrumental  wealth,  outside  of  land,  the 
returns  from  which  are  interest  and  profit  ;  and  all  wealth  invested 
in  and  inseparable  from  land  will  be  regarded  as  land,  and  the 
returns  from  it  as  rent. 

There  is  an  additional  advantage  in  this  use  of  the  term  capi- 
tal in  the  fact  that  it  is  the  only  wealth,  distinct, from  land,  that 
can  be  employed  in  harnessing  the  reluctant  natural  forces,  such 
as  steam,  electricity,  etc.,  to  the  production  of  wealth.  With 
this  use  of  the  term  capital,  it  will  be  strictly  correct  to  treat  the 
use  of  reluctant  natural  forces  in  production  as  synonymous  with 
capital,  because  they  never  participate  in  production  except  by 
the  use  of  capital.  And,  as  the  substitution  of  natural  for  human 
forces  in  the  productive  process  is  the  essential  wealth-cheapening 
feature  in  economic  progress,  we  shall  continue  to  regard  the  fac- 
tors in  production  as  Land,  Labor,  and  Natural  Forces  (capital). 

Which  of  these  three  factors  then  is  the  most  effective  in  pro- 
ducing wealth  ? — which  of  them  is  capable  of  contributing  the 
greatest  amount  of  productive  force  at  the  least  cost  ?  The  hand 
is  the  slowest,  and,  judged  by  its  results,  the  most  expensive 
instrument  that  can  be  used  in  the  production  of  wealth.  Hence 
we  find  that,  other  things  being  equal,  machine-made  products 
are  always  cheaper  than  hand-made  products,  and  the  difference 
in  their  cost  is  proportionate  to  the  relative  difference  in  which 
human  and  natural  forces  (capital)  participated  in  their  pro- 
duction. How,  or  upon  what  principle  then,  natural  forces  can 
be  made  to  save  human  labor  in  producing  the  world's  wealth  is 
the  question  next  to  be  considered. 

1  "  Principles  of  Political  Economy,"  vol.  i.,  p.  526. 


76  NA  TURAL   FORCES  SA  VE  HUMAN  LABOR. 

SECTION  IV. —  The  Principles  upon    Which  Natural  Forces 
Save  Human  Labor  in  Production. 

We  have  seen  that  human  effort  is  devoted  to  production  upon 
the  principle  of  obtaining  the  maximum  enjoyable  result  for  the 
minimum  painful  effort.  Indeed  upon  no  other  principle  can  the 
net  amount  of  happiness — /.  e.,  the  proportion  of  pleasure  to  pain 
in  human  experience,  be  permanently  increased.  While  most 
civilized  people  would  prefer  that  the  condition  of  the  laborer 
should  be  easy  and  pleasant,  and  his  wages  high,  very  few  are 
willing  to  give  a  fraction  more  for  their  commodities  in  order  to 
make  such  things  possible. 

That  which  undersells  always  supplants  that  which  is  under- 
sold, and  just  as  fast  as  any  product  can  be  undersold  will  the 
methods  used  in  ks  production  be  driven  out  of  use.  Conse- 
quently the  only  basis  upon  which  natural  forces  can  supersede 
human  labor  as  factors  in  production  is  that  they  produce  wealth 
more  cheaply.1  '  In  other  words,  the  use  of  capital  and  improved 
methods  in  the  production  of  wealth  is  ultimately  determined  by  its 
capacity  to  yield  increasing  returns.  This  brings  us  to  the  question 
of  what  makes  increasing  returns  possible. 

The  fact  that  wealth  can  be  produced  more  cheaply  by  natural 
forces  than  by  hand  labor  is  recognized  by  all  classes  of  economic 
writers.  But  why  the  use  of  natural  forces  in  production  is 
feasible  at  one  time  and  place  and  not  at  another — upon  what 
principle  hand  labor  as  a  productive  force  was  cheaper  than 
machinery  in  the  ninth  century,  and  machinery  became  cheaper 
than  hand  labor  in  the  nineteenth  century,  and  why  machinery 
will  yield  increasing  returns  in  America  and  Europe  to-day, 

1  By  cheapness  and  clearness  is  not  meant  merely  the  amount  of  money  that  is 
given  for  a  commodity.  An  article  may  be  and  often  is  cheaper  at  one  time  and 
place  at  twenty  cents  than  at  five  cents  at  another.  Shoes,  for  example,  would 
be  very  much  dearer  at  fifty  cents  a  pair  in  China  than  at  a  dollar  a  pair  in  Amer- 
ica. For  the  simple  reason  that  in  order  to  obtain  a  pair  of  shoes  at  fifty  cents 
the  laborer  in  China  would  have  to  give  more  than  a  whole  week's  labor,  while 
the  laborer  in  America  would  purchase  a  pair  at  a  dollar  with  less  than  one  day's 
work.  That  is  to  say,  he  could  give  twice  as  much  money  for  the  shoes  and  still 
obtain  them  for  less  than  one  sixth  of  the  labor  the  Chinaman  could.  Thus  a 
thing  is  really  cheap  or  dear,  not  according  as  it  will  exchange  for  a  large  or  small 
quantity  of  money,  but  solely  according  to  the  ratio  in  which  it  will  directly  and 
indirectly  exchange  for  a  given  quantity  of  labor. 


MISTAKEN  PRAISE    OF  PARSIMONY.  77 

while  it  fails  to  do  so  in  Asia  and  Africa,  the  current  doctrines 
of  political  economy  fail  to  explain.  Yet  this  is  one  of  the  most 
important  problems  which  it  is  the  special  function  of  economic 
science  to  solve.  To  make  natural  forces  cheaper  than  human 
labor,  as  a  means  of  production,  is  to  make  wealth  cheaper  than 
poverty,  and  civilization  cheaper  than  barbarism.  Therefore,  to 
explain  how  increasing  returns,  and  hence  the  successful  use  of 
machinery,  can  be  made  possible,  is  primarily  to  solve  the  prob- 
lem of  economic  production.  Because  reluctant,  natural  forces 
only  aid  in  producing  wealth  when  they  are  harnessed  to  the 
process  by  capital,  it  is  assumed  that  capital  is  the  cause  of  the 
successful  use  of  improved  methods  of  production.  And  because 
capital  is  wealth  which  might  have  been  used  for  personal  gratifi- 
cation, instead  of  being  devoted  to  production,  it  is  concluded 
that  it  is  the  result  of  painful  abstinence. 

Adam  Smith  was  never  tired  of  singing  the  praises  of  parsi- 
mony. Indeed,  with  him,  to  save  wealth  was  one  of  the  highest 
virtues  ;  while  to  consume  it,  except  in  the  meagerest  manner, 
was  a  social  vice.  He  even  went  so  far  as  to  declare '  that 
prosperous  manufacturing  villages  had  become  "  idle  and  poor 
in  consequence  of  a  great  lord's  having  taken  up  his  residence  in 
^ their  neighborhood,"  because  of  his  extravagant  consumption. 
There  is  probably  no  one  thing  that  the  great  Scotchman  said 
which  has  been  more  generally  accepted  than  that  parsimonious 
abstinence  increases  prosperity,  and  liberal  consumption  leads  to 
idleness  and  poverty. 

Mill  emphasized  and  elaborated  this  idea  even  more  than  did 
Dr.  Smith.  He  regarded  capital  as  the  alpha  and  omega  of  in- 
dustrial employment,  and  abstinence  from  consumption  as  the 
source  of  capital,  and  hence  the  initial  cause  of  prosperity.4  This 
notion  is  still  held  by  the  most  modern  writers  in  England  and 
this  country.  "  Capital,"  says  Prof.  Walker,  "arises  solely  out  of 
saving.  It  stands  for  self-denial  and  abstinence."  It  is  not 
difficult  to  see  how  this  view,  which  makes  capital  the  immediate, 

1  See  "  Wealth  of  Nations,"  Book  II.,  ch.  iii. 

*  "  While  on  the  one  hand  industry  is  limited  by  capital"  so  "  on  the  other  hand 
every  increase  of  capital  gives  or  is  capable  of  giving  additional  employment  to 
industry,  and  this  without  assignable  limit." — Mill's  "  Principles  of  Political 
Economy,"  vol.  i.,  p.  98. 


78  NECESSITY  OF  INCREASING  RETURNS. 

and  sacrifice  and  self-denial  the  initial,  cause  of  prosperity,  has 
given  rise  to  the  idea  that  industrial  progress  is  mainly  due  to  the 
social  martyrdom  of  the  capitalist  class,  to  whom  the  laborers  are 
under  eternal  obligation. 

This  is  truly  a  most  convenient  and  flattering  estimate  for  the 
successful  classes,  especially  when  they  are  called  upon  to  face 
the  less  fortunate  masses  in  time  of  adversity.  The  natural  out- 
come of  this  is  the  general  disposition  to  repress,  rather  than  to 
encourage,  any  movement  towards  multiplying  the  wants  and  de- 
sires,— hence,  increasing  the  consumption  of  wealth  among  the 
mass  of  the  people,  and  "  living  simply  as  our  fathers  did,"  is 
commonly  held  up  as  the  evidence  of  superior  character. 

A  doctrine  which  makes  parsimonious  simplicity  of  life  a  social 
virtue,  and  regards  capital  as  the  cause  of  industrial  progress,  is 
an  economic  inversion  no  less  inimical  to  the  development  of  the 
true  principles  of  social  economics  than  is  the  socialistic  doctrine 
that  regards  the  laborer  as  the  sole  producer  of  wealth  and  the 
capitalist  as  an  economic  robber. 

A  very  little  examination  of  the  subject  will  show  that,  while 
the  use  of  capital  is  indispensable  to,  it  is  not  the  cause  of,  the 
employment  of  wealth-cheapening  methods  in  production.  On 
the  contrary,  capital  in  its  very  nature  can  never  be  any  thing 
but  an  economic  instrument,  the  successful  use  of  which  has 
been  made  possible  by  previously  existing  conditions.  It  is  one 
of  the  characteristic  features  of  economic  production  that  the 
superiority  of  the  natural  over  human  forces  consists  in  their 
capacity  to  produce  a  much  larger  quantity  at  the  same  cost,  and 
not  in  their  capacity  to  produce  a  small  quantity  at  a  less  cost. 
Therefore,  if  only  the  traditional  quantity  of  the  produce  can  be 
utilized  (consumed),  the  new  method  cannot  be  successfully  em- 
ployed because  it  cannot  produce  that  small  quantity  any  cheaper 
than  it  can  be  obtained  by  existing  methods  ;  and  hence  fails  to 
yield  increasing  returns.  The  first  condition,  then,  necessary  to 
the  successful  use  of  natural  forces  is  a  sufficiently  enlarged 
market  to  utilize  the  increased  product  resulting  from  the  im- 
proved methods. 

No  amount  of  increase  in  the  use  of  capital,  then,  can  cheapen 
wealth  and  add  to  the  well-being  of  the  community  unless  it  is 
accompanied  by  a  larger  demand  for  commodities — an  increased 


NOT   THE  RESULT  OF  ABSTINENCE.  79 

consumption  of  wealth  by  the  people.  Thus,  instead  of  parsi- 
mony, on  the  part  of  the  great  body  of  consumers,  promoting  the 
use  of  capital  in  production  and  the  growth  of  industrial  pros- 
perity in  the  community,  it  tends  to  prevent  it. 

Nor  is  the  claim  that  capital  is  created  by  self-sacrifice  any 
more  correct.  It  is  true  that  capital  consists  of  wealth  which 
might  have  been  consumed  by  its  owner  for  personal  gratification. 
Capital  may  be,  and  doubtless  is  sometimes,  the  result  of  painful 
abstinence,  but  the  painful  abstinence  is  always  exercised  upon 
the  same  principle,  and  from  the  same  motive,  that  painful  effort 
is  exerted — namely,  that  a  still  more  painful  desire  may  be  grati- 
fied ;  in  other  words,  that  a  greater  amount  of  pleasurable  grati- 
fication may  ultimately  be  derived  from  the  investment  of  wealth 
in  productive  enterprise  than  would  be  obtained  from  its  imme- 
diate consumption.  It  is  therefore  no  more  correct  to  say  that 
capital  is  the  result  of  abstinence  than  it  is  to  call  labor  philan- 
thropy. Abstinence — which  represents  painful  self-denial — is 
undertaken  for  the  identical  reason  that  labor — painful  effort — is 
expended.  The  object  of  both  is  to  obtain  more  in  gratification 
than  they  give  in  sacrifice.  But  even  this  only  applies  to  capital 
in  its  most  primitive  stages.  It  is  more  than  probable  that  not 
one  per  cent,  of  the  world's  present  capital  is  the  result  of  any 
such  personal  abstinence. 

While  original  investments  are  savings  and  perhaps  the  result  of 
some  self-denial,  they  are  always  undertaken  in  the  belief  that  subse- 
quent capital  will  be  the  automatic  product  of  the  first,  and  will  come 
without  any  personal  self-denial.  It  is  not  true,  then,  in  any  real 
sense,  to  say  that  capital  is  created  by  self-sacrifice,  as,  even  in 
its  abstinence  stage,  it  is  simply  the  result  of  enduring  a  small 
amount  of  pain  in  order  to  obtain  a  large  amount  of  pleasure, 
which  is  the  purest  self-interest  and  has  no  element  of  real  sacri- 
fice in  it. 

Moreover,  as  the  capital-creating  abstinence  is  always  based 
upon  the  hope  of  future  gains,  it  will  only  be  undertaken  in  pro- 
portion to  the  probability  of  its  successful  investment  ;  and  its 
successful  investment  in  production  depends  upon  the  possibility 
of  its  yielding  increasing  returns  ;  this  in  turn  depends  upon  the 
extent  of  the  market,  or  the  increased  consuming  capacity  of  the 
community.  Thus  it  is  that  neither  the  creation  nor  the  success- 


8O  CAPITAL    THE   EFFECT  OF  PROGRESS. 

ful  use  of  capital  is  promoted  by  parsimonious  social  simplicity, 
but,  on  the  contrary,  they  both  primarily  depend  upon  advancing 
social  complexity.  Capital  is  the  effect,  rather  than  the  cause, 
of  social  progress,  and  instead  of  the  masses  being  indebted  to 
the  employing  class  for  their  prosperity,  it  is  the  social  progress 
of  the  community  which  has  made  the  existence  and  success  of 
the  capitalist  possible. 

It  is  a  universal  fact  in  history  that  where  the  social  life  is  the 
simplest,  the  wants  the  fewest,  and  the  consumption  of  wealth  per 
capita  the  smallest,  the  use  of  capital  in  production  is  the  least. 

Thus  the  real  reason  why  there  are  practically  no  capitalists 
among  the  Esquimaux  and  Patagonians — and  very  few  in  India 
and  China — is  because  there  is  no  economic  use  for  them  ;  and 
there  is  no  use  for  them  because,  as  a  factor  in  production, 
human  labor  is  cheaper  there  than  natural  forces.  The  wants, 
social  habits,  and  demands  of  the  masses,  are  too  simple  in  those 
countries  to  furnish  a  market  for  a  sufficiently  increased  quantity 
of  wealth  to  make  increasing  returns  possible,  and  the  use  of 
capital  profitable. 

SECTION  V. — Social  Consumption   the  Basis  of   Economic 

Production. 

We  are  now  in  a  position  to  affirm  the  seemingly  paradoxical 
propositions  :  that  consumption  is  the  immediate  cause  of,  and 
regulating  influence  in,  production  ;  that,  not  only  the  quantity 
and  quality  of  wealth  produced,  but  also  the  methods  employed, 
the  cost  of  its  .production,  and  consequently  its  price  to  the  con- 
sumer, are  finally  determined  by  consumption  ;  and  that  wealth 
becomes  cheap  as  man  becomes  dear. 

Nor  is  the  reason  difficult  to  understand,  if  we  constantly  view 
man  and  his  wants  as  the  source  and  end  of  economic  move- 
ment. When  we  fully  recognize  that  the  progress  of  society 
consists  in  the  differentiation  of  man's  social  relations,  and  that 
every  differentiation  in  the  social  polity  is  simply  an  effort  to 
better  adapt  his  social  environment  to  the  more  complete  gratifi- 
cation of  his  wants,  much  of  the  difficulty  surrounding  the  sub- 
ject of  economic  production  has  been  overcome.  This  being 
true,  it  follows  that  the  amount  and  direction  of  man's  effort  is 
finally  governed  by  his  wants.  Therefore  the  quantity  and  qual- 


CONSUMPTION   THE   CAUSE   OF  PRODUCTION.         8 1 

ity  of  wealth  permanently  produced  at  any  given  time  under 
normal  conditions  will  ultimately  be  determined  by  the  effectual 
desires  and  wants  of  the  community. 

As  elsewhere  explained,1  the  difference  between  effectual  and 
ineffectual  desires  is  the  difference  in  their  power  to  induce 
the  necessary  effort  for  their  gratification.  Thus,  desires  become 
economically  effectual  just  in  proportion  as  they  grow  in  inten- 
sity and  their  non-gratification  inflicts  more  pain  than  is  involved 
in  the  labor  necessary  to  satisfy  them.  This  explains  why  we 
see  in  some  individuals,  classes,  and  countries,  a  willingness  to 
put  forth  great  effort,  and  take  great  Tisk,  in  order  to  obtain 
things  which  others,  while  they  might  gladly  receive,  would  do 
practically  nothing  to  obtain. 

How,  it  may  be  asked,  is  this  relation  between  desire  and  effort, 
consumption  and  production,  to  be  ascertained  ?  How,  for  in- 
stance, do  the  producers  know  when  the  desires — or  wants — of 
the  consumers  have  reached  the  economic — or  effectual — degree 
of  intensity  ?  The  answer  is  :  by  the  willingness  of  the  consumer 
to  give  the  necessary  effort,  or  its  equivalent,  to  procure  the  satis- 
faction of  his  wants. 

For  the  same  reason  that  economic  wants,  or  demands,  can 
only  be  recognized  by  the  willingness  to  exert  the  necessary 
amount  of  effort  for  their  gratification,  to-morrow's  effectual 
demands  can  only  be  estimated  by  the  knowledge  of  to-day's  con- 
sumption. If  more  of  a  given  kind  of  wealth  is  wanted  to-day 
than  was  produced,  and  this  want  is  accompanied  by  a  willing- 
ness to  give  the  necessary  effort,  or  its  equivalent,  to  produce  it,  a 
greater  quantity  of  the  commodity  will  be  produced  to-morrow. 
And  conversely,  if  more  of  a  particular  commodity  is  produced 
to-day  than  is  effectually  demanded,  it  will  not  all  be  consumed  ; 
and  in  proportion  as  yesterday's  production  exceeds  to-day's 
consumption,  will  to-morrow's  production  be  limited.  Although 
desire  is  the  initial  cause  of  production,  its  effective  intensity 
and  extent  are  economically  measured  by  and  registered  in  actual 
consumption.  Consumption  being  the  only  economic  measure 
of  want,  it  is  the  real  basis  and  final  regulator  of  production. 
Simple  as  this  truth  is,  it  is  far  from  being  generally  understood ; 
indeed,  the  reverse  view  is  commonly  held.  Because  wealth 
1  Part  I.,  ch.  iii.,  p.  23. 


82  PHYSICAL  AND   SOCIAL  WANTS. 

cannot  be  consumed  until  it  is  produced,  it  is  contended  that 
consumption  must  be  determined  by  production.  It  is  of  course 
true  that  we  cannot  consume  unless  we  produce,  but  it  does  not 
follow,  on  that  account,  that  production  sustains  the  causal 
relation  to  consumption.  Although  we  must  produce  before  we 
consume,  we  do  not  consume  because  we  produce ;  but  we 
always  produce  because  we  consume,  or  that  we  may  consume. 
Chronologically,  production  precedes  consumption,  but  eco- 
nomically consumption  precedes  production  and  is  the  cause 
of  it. 

If  bows  and  arrows,' tomahawks,  spinning-wheels,  or  hand- 
looms  were  extensively  manufactured  in  this  country  to-day,  that 
would  not  cause  them  to  come  into  general  use  again,  nor  would 
it  have  the  slightest  influence  in  that  direction.  Whenever  a 
commodity  is  produced  in  advance  of  the  effectual  desire  for  it, 
loss,  and  perhaps  bankruptcy,  is  the  result.  Were  this  otherwise, 
industrial  depressions  would  be  impossible,  because  an  accumu- 
lation of  products,  or  what  is  called  over-production,  could  not 
occur.  The  mere  fact  of  the  goods  being  produced  would,  in 
that  case,  be  a  sufficient  cause  to  create  an  effectual  demand  for 
them,  and  this,  everybody  knows,  is  not  the  case. 

In  order  fully  to  understand  the  economic  influence  of  con- 
sumption upon  production,  it  is  necessary  to  consider  the  subject 
in  its  qualitative  as  well  as  its  quantitative  aspect.  The  con- 
sumption, or  effectual  demand,  is  determined,  as  we  have  seen, 
by  the  established  wants  of  the  community.  These  wants  are  of 
two  kinds— -physical  and  social.  The  former  are  mainly  inherent, 
and  comprise  those  wants  which  relate  to  physical  -sustenance, 
such  as  food,  clothing,  and  shelter.  Social  wants  are  mainly 
acquired,  and  comprise  the  tastes  and  desires  that  arise  from  the 
quickening  influences  of  social  intercourse  ;  these  are  luxuries  at 
first,  but  by  frequent  repetition  finally  become  necessities  of 
social  life.  These  two  classes  of  wants  have  distinctive  charac- 
teristics, are  increased  by  different  influences,  and  have  an 
entirely  different  effect  upon  production. 

Physical  wants  alone,  of  which  food  comprises  the  major  part, 
cannot  be  increased  in  each  individual  to  any  considerable  ex- 
tent. The  stomach  of  the  savage  will  consume  as  much  as  that 
of  civilized  man  ;  hence  the  effectual  demand,  through  this  class 


IMPORTANCE   OF  SOCIAL   WANTS.  83 

of  wants,  can  only  increase  in  about  the  same  ratio  as  the  popu- 
lation. Moreover,  these  wants  are  mainly  supplied  by  agri- 
cultural products  which  involve  isolating  and  non-socializing 
occupations. 

There  are  many  reasons  why  an  increase  of  consumption  from 
the  mere  increase  of  population  would  not  promote  the  use  of 
improved  methods  of  production.  It  is  characteristic  of  the  use 
of  improved  methods  that  they  are  wealth-cheapening  only  in 
proportion  as  they  are  labor-saving.  Unless  the  discharged 
laborers  can  be  re-employed,  idleness — the  worst  of  social  evils — 
will  be  increased.  Therefore  labor-discharging  improvements  can 
only  be  economically  successful  when  they  are  accompanied  by 
new  employment-creating  conditions,  which  an  increase  of  the 
simple  physical  wants  can  never  supply. 

It  will  readily  be  observed  that,  when  an  enlarged  demand  for 
commodities  is  entirely  due  to  the  increase  of  population,  every 
discharged  laborer  involves  a  corresponding  diminution  of  the 
market,  thereby  destroying  the  wealth-cheapening  effect  of  the 
new  methods.  Consequently,  all  that  is  gained  by  the  labor- 
saving  process  is  lost  by  the  increased  idleness  and  contracted 
consumption.  Thus  it  is  that  natural  forces  cannot  be  profitably 
employed  in  production  except  when  the  market  for  their  pro- 
ducts increases  faster  than  the  population,  i.e.,  increases  per  capita 
of  the  population. 

Social  wants  are  essentially  different  in  all  their  characteristics. 
They  are  the  result  of  social,  rather  than  cosmic,  influences. 
They  can  be  increased  indefinitely  in  each  individual,  and  can 
consequently  be  multiplied  much  faster  than  the  population. 
They  also  furnish  the  demand  for  distinctively  manufactured 
products,  and  so  necessitate  concentrated  and  socializing 
occupations. 

These  features  tend  to  promote  the  use  of  natural  forces  in 
several  ways.  Every  addition  to  the  number  of  social  wants  in- 
creases the  quantity,  and  often  the  variety,  of  commodities  each 
individual  consumes.  This  necessarily  increases  the  demand  for 
products  faster  than  the  number  of  laborers,  and  with  the  growth 
of  this  demand  the  difficulty  of  supplying  it  is  increased  in  two 
ways,  (i)  Just  as  the  number  of  wants  in  each  individual  in- 
creases, the  possibility  of  supplying  them  by  hand-labor  dimin- 


84  DEMOCRACY  OF  NATURAL  LAW. 

ishes.  (2)  In  proportion  as  the  consumption  of  wealth  by  the 
laborer  increases,  the  cost  of  his  living,  and  consequently  that  of 
his  labor,  is  correspondingly  raised  and  the  price  of  the  product 
advanced.  Since  an  attempt  to  supply  the  increased  social  wants 
by  existing  methods  involves  a  corresponding  increase  of  irksome 
labor,  it  neutralizes  the  advantage  derived  from  the  satisfaction 
of  the  new  desires.  Obviously,  in  this  case,  the  new  wants  will 
be  abandoned  unless  they  can  be  supplied  cheaper,  i.e.,  with  less 
labor,  and  this  can  only  be  accomplished  by  making  natural 
forces  do  a  portion  of  the  work. 

When  this  point  is  reached  all  the  conditions  for  utilizing  im- 
proved methods  are  present.  The  new  wants  not  only  enlarge 
the  established  demand,  but  they  create  a  market  for  a  greater 
variety  of  products,  the  manufacture  of  which  creates  employ- 
ment for  the  laborers  who  have  been  discharged  by  the  improved 
methods. 

Thus  it  is  that,  when  wants  multiply  more  rapidly  than  laborers 
increase  in  number,  labor-saving  methods  do  not  create  enforced 
idleness,  as  in  the  case  of  purely  physical  wants,  because  the  same 
influences  which  compel  them  to  discharge  laborers  in  one 
industry  create  new  employments  for  them  in  another.  By  this 
means  the  cost  of  producing  each  article  is  diminished  and  the 
price  to  the  consumer  is  thereby  lowered,  so  that,  when  the  de- 
mand for  commodities  is  increased  by  the  multiplication  of  social 
wants,  it  not  only  makes  the  use  of  improved,  methods  necessary ', 
but  it  also  introduces  new  employment-creating  conditions  which 
make  them  economically  possible.  Manifestly,  therefore,  natural 
forces  become  cheaper  than  human  labor,  only  when  the  demand 
for  commodities  is  enlarged  by  an  increase  in  the  social,  rather 
than  in  the  physical,  wants  of  the  people. 

It  is  not  enough,  however,  that  this  increase  of  social  wants 
take  place  in  a  small  class  ;  to  be  effective  it  must  be  general. 
Nature  is  very  democratic — she  Will  not  work  cheaply  for  the  few. 
Steam  and  electricity  can  only  be  harnessed  to  production  when 
their  services  are  required  to  satisfy  the  numerous  social  wants, 
per  capita,  of  large  numbers  of  people  ;  consequently,  the  social 
consumption  of  the  most  opulent  aristocracy  is  as  impotent  to 
furnish  profitable  employment  for  steam-driven  machinery  as  is 
the  meagre  fare  of  a  servile  peasantry.  Nor  is  the  reason  for 


NEW  WANTS  MAKE  NEW  MARKETS.  85 

this  difficult  to  understand  if  we  remember  that  capital  can  only 
be  economically  employed  when  it  is  cheaper  than  labor  as  a 
productive  force.  There  are  but  two  ways  in  which  this  can  be 
brought  about — either  by  reducing  the  cost  of  employing  capital 
or  by  increasing  the  cost  of  employing  labor.  The  cost  of 
using  capital  can  only  be  diminished  by  increasing  the  market 
for  its  products,  in  order  that  it  may  produce  on  a  large  scale. 
The  cost  of  using  labor  can  only  be  increased  by  enlarging  the 
consumption  and  raising  the  wages  of  the  laborer.  Neither  of 
these  conditions  can  be  furnished  by  an  increase  in  the  consump- 
tion of  a  small  non-laboring  class.  An  increase  in  the  wants  of 
such  a  class,  though  relatively  very  great,  could  not  furnish  a 
sufficiently  extensive  market  to  sustain  the  production  of  any 
commodity  by  factory  methods  ;  and  it  could  exercise  no  in- 
fluence in  advancing  wages,  because  the  increased  consumption 
does  not  enter  into  the  life,  and  therefore  affect  the  price,  of  the 
laborer.  The  chief  economy  in  the  use  of  capital  being  in  the 
extent  of  its  ability  to  save  labor,  the  lower  the  wages  the  smaller 
the  chances  of  its  success — because  the  cheaper  the  man  the  less 
there  is  to  be  gained  by  saving  his  labor  ; — consequently  the 
necessarily  limited  market  that  the  wants  of  a  small  class  could 
supply  would  not  guarantee  a  sufficient  prospect  of  increasing 
returns,  to  warrant  the  investment  of  capital  required  for  the 
adoption  of  steam-driven  machinery. 

An  increase  in  the  social  wants,  and  consequent  consumption 
of  wealth  by  the  laboring  classes,  would  furnish  both  of  the 
essential  conditions  referred  to.  (i)  Because  they  are  so  numer- 
ous that  a  slight  increase  in  their  consumption,  per  capita,  would 
be  an  immense  addition  to  the  market,  and  at  once  warrant  the 
production  of  commodities  on  an  increasingly  large  scale.  (2) 
Because  the  enlarged  market,  being  due  to  the  increased  con- 
sumption by  the  laborers,  raises  the  price  of  their  labor,  and 
consequently  that  of  the  commodities  they  produce — thereby 
making  the  use  of  labor-saving  methods  indispensable  in  order 
to  keep  these  commodities  salable.  Every  fall  in  prices  from 
such  causes  extends  the  market  still  further,  by  putting  the 
products  within  the  reach  of  a  larger  class  of  consumers.  There- 
fore, the  truly  civilizing  consumption  is  that  which  results  from 
the  increased  social  wants  of  the  masses  ;  for,  by  simultaneously 


86  HIGH  WAGES  MEAN  LOW  PRICES. 

increasing  wages  and  reducing  prices,  it  both  raises  man  to 
the  appropriation  of  wealth,  and  places  wealth  within  the  reach 
of  man.  . 

A  clear  understanding  of  this  principle  will  enable  us  to 
explain  why  the  upper  classes  in  ancient  civilizations,  with  all 
their  pomp,  ostentation  and  almost  profligate  consumption  of 
wealth,  could  not  employ  machinery  ;  why  men  were  cheaper 
than  machinery  in  the  ninth  century,  as  factors  in  production  ; 
and  why  machinery  is  so  much  cheaper  than  men  in  the  nineteenth. 
We  find  to-day,  the  world  over,  that  the  use  of  steam-driven 
machinery  is  the  most  general,  wealth  is  the  most  abundant,  and 
social  development  and  political  freedom  the  most  advanced, 
where  the  social  wants  of  the  masses  are  the  most  numerous  and 
the  general  rate  of  wages  is  the  highest. 

In  the  light  of  this  law  we  are  also  able  to  comprehend  why,  in 
the  evolution  of  society,  such  great  advances  were  made  in  phi- 
losophy and  the  fine  arts  before  any  of  the  simpler,  though 
equally  important,  mechanical  contrivances — i.e.,  the  use  of 
steam,  electricity,  etc. — were  discovered.  We  can  understand, 
for  instance,  why  men  could  learn  the  courses  of  the  stars  and 
the  revolutions  of  the  planets  before  they  knew  how  to  make 
a  good  wagon-wheel  ;  why  they  could  build  a  Chinese  wall,  or 
an  Egyptian  pyramid,  before  they  could  make  a  common  plough  ; 
why  they  could  construct  the  Parthenon  and  the  Colosseum 
before  they  knew  enough  to  build  a  saw-mill,  use  movable  types, 
or  invent  sewing-machines. 

The  fact  that  the  ancients  excelled  in  sculpture,  painting, 
music,  etc.,  while  we  are  devoted  to  producing  common  conven- 
iences and  the  decencies  of  every-day  life,  is  frequently  alluded 
to  as  evidence  that  ancient  civilizations  were  superior  to  our  own. 
This  is  a  great  mistake,  the  character  of  a  civilization  is  not  in- 
dicated by  the  individual  accomplishment  of  a  few,  but  by  the 
social  condition  of  the  great  mass  of  the  people.  The  error  of 
considering  the  earlier  civilizations  as  superior  to  the  present  is 
mainly  due  to  the  failure  to  recognize  the  difference  in  the 
economic  and  social  influences  which  determine  the  success  of 
various  discoveries,  inventions,  or  attainments. 

These  achievements  may  be  divided  into  two  classes.  One  in- 
cludes all  those  which  can  be  accomplished  by  hand  labor,  and 


TWO  KINDS  OF  DISCOVERIES.  8/ 

whose  utility  does  not  consist  in  their  capacity  to  cheapen  wealth, 
or  their  success  depend  upon  the  extent  of  appreciation  among 
the  common  people.  The  other  embraces  those  acquisitions 
whose  utility  consists  in  their  ability  to  economize  labor,  and 
whose  success  depends  upon  the  extent  to  which  their  results  are 
consumed  by  the  masses.  For  example,  the  discoveries  of  Euclid 
and  Archimedes  in  mathematics  ;  those  of  Hipparchus,  Al  Ba- 
tain,  Copernicus,  Kepler,  Galileo,  and  Newton  in  astronomy  ;  the 
accomplishments  of  Phidias,  Scopas,  Niccolo,  and  Ghiberti  in 
sculpture  ;  those  of  Leonardo  da  Vinci,  Michael  Angelo,  and 
Raphael  in  painting  ;  and  in  poetry,  oratory,  and  the  drama,  the 
efforts  of  Homer,  Cicero,  and  Shakespeare,  were  almost  exclu- 
sively the  result  of  the  individual  genius  producing  them.  The 
success  or  failure  of  their  undertakings  did  not  depend,  in  any 
appreciable  degree,  upon  the  material  and  social  condition  of  the 
common  people  ;  all  they  required  in  that  direction  was  the 
patronage  of  a  king,  a  pope,  or  a  very  limited  aristocracy. 

With  the  mechanical  contrivances  of  the  eighteenth  and  nine- 
teenth centuries,  which  have  revolutionized  the  social  condition 
of  the  civilized  world,  this  has  not  been  the  case.  The  utility  of 
movable  types,  of  the  printing-press,  the  spinning-jenny  and 
the  power-loom,  the  railroad,  the  telegraph,  and  the  thousand 
other  modern  labor-saving  contrivances,  has  consisted  in  the 
extent  of  their  capacity  to  save  human  labor  in  its  efforts  to  pro- 
cure the  necessities  and  conveniences  of  social  life  ;  and  the 
success  of  these  contrivances  has  entirely  depended  upon  the 
extent  to  which  their  results  have  been  demanded  by  the  masses. 
If  books  had  not  been  more  generally  read  in  the  sixteenth, 
seventeenth,  and  eighteenth  centuries  than  in  the  sixth,  seventh, 
and  eighth,  Gutenberg's  invention  of  the  art  of  printing,  in  1440, 
would  have  been  as  useless  as  it  was  when  discovered  in  China 
two  thousand  years  before.  Upon  the  same  principle  that  to  set 
up  and  print  a  single  copy  of  the  "  Wealth  of  Nations  "  to-day 
would  cost  $1,000  (while  if  fifty  thousand  were  printed  they 
could  be  sold  at  $1.00  each),  the  small  number  of  books  that 
were  then  demanded  could  be  copied  cheaper  by  hand  than  they 
could  have  been  printed  ;  but  when  the  masses  began  to  use 
books,  printing  became  cheaper  than  copying. 

So  long  as  the  consumption  of  cotton  and  woollen  cloth,  silks, 


88  CAUSE  OF  SOCIAL  DECAY. 

laces,  and  carpets,  and  the  multitude  of  various  commodities 
produced  from  wood,  tin,  iron,  brass,  silver,  gold,  etc.,  was  con- 
fined to  the  aristocracy,  the  small  quantity  required  could  be 
produced  by  hand-labor  cheaper  than  by  steam-power  ;  but  when 
the  millions  began  to  use  these  things,  the  factory  became  cheaper 
than  hand  labor. 

If  travel  and  transportation  were  limited  to  the  upper  classes, 
the  discoveries  of  Stephenson  and  Fulton  would  be  as  useless  to 
mankind  as  a  machine  to  send  water  down  hill.  If  none  but 
millionaires  patronized  the  steam-cars  in  New  York  City,  it  would 
cost  more  to  ride  on  the  elevated  railroad  than  in  a  private  car- 
riage ;  but  now  that  five  hundred  thousand  people  use  it  daily, 
every  one  can  ride  on  it  for  a  little  over  half  a  cent  a  mile. 

This  is  why  an  emperor  of  China  could  build  a  thirteen-hun- 
dred-mile  wall,  while  he  could  not  ride  on  a  railroad.  Rome 
could  build  the  aqueducts,  but  she  could  not  carry  a  newspaper 
three  thousand  miles  for  a  cent.  Euclid  could  develop  the 
science  of  geometry,  and  Michael  Angelo  could  paint  the  "  Last 
Judgment,"  but  they  could  not  make  steel  pens  or  parlor  matches. 
Copernicus  and  Kepler  could  discover  the  course  of  the  planets, 
and  Newton  the  law  of  gravitation,  but  they  could  not  make  a 
type-writer,  or  publish  a  daily  paper  for  one  cent  a  copy. 

Had  the  ruling  classes  used  their  power  as  much  to  develop  the 
social  wants  and  character  of  the  masses  as  they  did  to  repress 
them,  so  that  the  printing-press  and  factory  would  have  preceded 
the  Pyramids  and  the  Colosseum,  those  monuments  of  human 
slavery  could  never  have  been  erected  ;  and  the  increased  social 
susceptibility  of  the  common  people  to  the  elevating  influences  of 
art,  poetry,  learning,  and  philosophy,  might,  and  probably  would, 
have  saved  those,  so-called,  civilizations  from  premature  decay, 
and  enabled  the  human  race  to  avoid  that  historic  nightmare,  the 
"  Dark  Ages,"  by  sustaining  a  continuous,  progressive  civilization. 

The  more  thoroughly  we  investigate  the  history  of  the  industrial 
development  of  society,  the  more  completely  is  the  truth  of  the 
conclusions  arrived  at  in  the  preceding  pages  of  this  chapter 
established.  These  may  be  briefly  summarized  as  follows  : 

(1)  That  all  wealth  is  produced  for  the  gratification  of  human 
wants. 

(2)  That  the  active  factors  in  production  are,  human  forces 


LAW  OF  PRODUCTION  SUMMARIZED.  89 

and  natural  forces  ;  the  former  being  represented  by  labor,  and 
the  latter  by  capital. 

(3)  That  the  cost  of  production,  and  consequently  the  price  of 
commodities,  diminishes  in  proportion  as  natural  forces  prepon- 
derate over  human  forces  in  the  process  of  production. 

(4)  That   labor-saving   appliances   can   only  be    successfully 
employed  in  production  when  they  yield  increasing  returns   to 
the  capital  invested. 

(5)  That  capital  will  only  yield  increasing  returns  when  it  can 
be  employed  cheaper  than  labor. 

(6)  That  labor-saving  appliances  can  only  become  cheaper  than 
hand  labor  when  they  can  produce  in  large  quantities. 

(7)  That  the  possibility  of  producing  on  a  large  scale  depends 
entirely  upon  the  market  being  extended  more  rapidly  than  labor- 
ers increase  in  number — i.e.,  an  increase  in  the  consumption  of 
wealth,  per  capita,  of  the  population. 

(8)  That  such  an  extension  of  the  market  can  only  result  from 
an  increase  in  the  social  wants  of  the  masses,  which  under  modern 
conditions  is  synonymous  with  a  rise  in  the  general  rate  of  wages. 

It  may  therefore  be  laid  down,  as  a  universal  principle  in  social 
economics,  that  the  labor-saving  and  wealth-cheapening  capacity 
of  natural  forces  can  only  be  utilized  as  the  social  consumption 
of  the  laboring  classes  is  increased.  In  other  words,  things  can 
be  cheapened  only  as  man  becomes  dear  ;  and  to  increase  the  in- 
fluences which  develop  the  social  wants  and  raise  the  wages  of  the 
laborer  is  to  make  wealth  cheaper  than  poverty,  and  civilization 
cheaper  than  barbarism. 


CHAPTER  II. 
ECONOMIC  VALUE. 

SECTION  I. — Definition  of  Value. 

IT  is  doubtful  if  there  is  a  term  in  the  vocabulary  of  economics 
about  which  there  is  such  a  lack  of  clear  understanding  as  the 
word  value.  In  popular  phrase  it  has  often  a  very  elastic  signifi- 
cation. It  is  sometimes  used  to  indicate  that  which  we  give  for 
things  ;  and  it  is  quite  frequently  employed  without  any  relation 
to  exchange — as  if  it  represented  some  inherent  quality  residing 
in  the  thing  itself  without  regard  to  its  relation  to  other  things. 
For  instance,  we  often  hear  such  expressions  as  the  value  of  pure 
air  ;  the  value  of  sunlight  ;  the  value  of  genius,  of  virtue,  of  re- 
ligion, of  esthetics,  of  culture,  etc.  To  give  the  word  such  a 
broad  meaning  is  to  deprive  it  of  all  specific  significance  as  a 
scientific  term.  i  .- 

Although  the  necessity  of  avoiding  this  loose  metamorf4ncal_use 
of  the  word  has  been  generally  recognized  by  leading  economists, 
they  have  continued  to  employ  it  with  such  a  variety  of  import  as 
to  leave  its  real  meaning  scarcely  less  obscure. 

In  almost  every  treatise  on  this  subject  we  find  such  expres- 
sions as  :  natural  value  ;  market  value  ;  use  value  ;  exchange  value, 
etc.  Very  frequently  the  effect  of  this  indefinite  use  of  the  word 
is  to  confound  value  with  wealth.  Much  of  this  confusion  has  its 
rise  in  that  often  quoted  statement  of  Adam  Smith  in  which  he 
says  :  "  The  word  value,  it  is  to  be  observed,  has  two  different 
meanings,  and  sometimes  expresses  the  utility  of  some  particular 
object,  and  sometimes  the  power  of  purchasing  other  goods  which 
the  possession  of  that  object  conveys.  The  one  may  be  called 
value  in  use,  and  the  other,  value  in  exchange.  The  things  which 

90 


RELATION  OF  UTILITY  TO  VALUE.  91 

have  the  greatest  value  in  use  frequently  have  little  or  no  value  in 
exchange  ;  and,  on  the  contrary,  those  which  have  the  greatest 
value  in  exchange  have  frequently  little  or  no  value  in  use."  '  It 
would  be  difficult  to  find  a  statement  that  is  more  misleading,  or 
one  which  has  been  more  generally  accepted  than  this.  To  use 
the  word  value  to  "  express  the  utility  of  a  particular  object  "  is 
entirely  incorrect. 

Dr.  Smith,  or  his  disciples,  would  probably  tell  us  that  this  is 
value  in  use.  Such  an  expression  is  a  misnomer.  A  thing  may 
be  important,  or  even  indispensable  in  use — as  in  the  case  of  the 
air  and  the  sun, — but  it  cannot  possibly  be  -valuable  in  use.  What 
is  really  referred  to  here  is  utility  and  not  value.  The  difference 
between  utility  and  value  is  fundamental  :  the  former  is  the  qual- 
ity of  a  thing  ;  while  the  latter  is  the  relation,  or  proportion, 
between  things.  Such  a  view  confounds  the  ratio  of  exchange 
with  the  cause  of  the  exchange,  and  is  fatal  to  any  clear  reason- 
ing on  the  subject. 

There  is  no  scientific  reason  for  using  the  word  value  to  express 
utility  under  any  circumstances  ;  or  for  accompanying  it  with 
qualifying  expressions  to  indicate  the  kind  of  value.  There  are 
no  kinds  of  value.  The  term  should  never  be  used  to  express 
qualities,  but  only  the  exchange  relation  of  quantities.  With  this 
definition  both  terms  assume  a  distinctive  meaning  and  one  which 
their  use  will  always  convey  without  qualification.  Utility  then, 
in  economic  science,  always  means  the  quality  of  a  thing  which 
makes  it  desirable,  and  for  which  something  will  be  voluntarily 
given  in  exchange  ;  and  value  simply  expresses  the  ratio  in  which 
the  things  are  exchanged.2 

In  order  to  avoid  any  misuse  of  the  term  value,  as  here  defined, 
it  should  ever  be  remembered  that  it  is  purely  an  economic  phrase, 
and  relates  exclusively  to  social  phenomena.  There  can  no  more 

1  "  Wealth  of  Nations,"  Book  I.,  ch.  iv.,  p.  21. 

2  Value  in  exchange  expresses  nothing  but  a  ratio,  and  the  term  should  not  be  used 
in  any  other  sense.  To  speak  simply  of  the  value  of  an  ounce  of  gold  is  as  absurd 
as  to  speak  of  a  ratio  of  the  number  seventeen.    What  is  the  ratio  of  the  number 
seventeen  ?     The  question  admits  of  no  answer,  for  there  must  be  another  num- 
ber named  in  order  to  make  a  ratio  ;  and  the  ratio  will  differ  according  to  the 
number  suggested.    What  is  the  value  of  iron  compared  with  that  of  gold  ?  is  an 
intelligible  question.      The  answer  consists  in  stating  the  ratio  of  the  quantities 
exchanged." — Stanley  Jevons'  "  Theory  of  Political  Economy,"  p.  84. 


92  DEFINITION   OF  VALUE. 

be  value  without  society  than  there  can  be  ratio  with  a  single 
thing  ;  the  very  idea  implies  a  contradiction  in  terms.  Value  not 
only  expresses  the  ratio  of  exchange  but  the  ratio  of  economic 
exchange.  An  economic  exchange  must  be  mutually  advanta- 
geous ;  hence  it  must  be  an  equitable  exchange  in  which  each  gives 
an  equivalent  for  what  he  gets.  Exchanges  in  which  one  gains  only 
by  another's  loss  are  highly  uneconomic,  inequitable,  and  so- 
cially injurious,  and  tend  to  extinguish  themselves  by  the  injury 
which  they  inflict.  Economic  value  is  indicated  only  by  exchange 
relations  which  tend  to  perpetuate  themselves  by  promoting  gen- 
eral industrial  and  social  well-being.  I  shall  define  value,  there- 
fore, as  the  ratio  in  which  different  quantities  of  the  various  kinds 
of  wealth  and  service  will  exchange  as  economic  equivalents. 

In  order  that  any  object,  or  service,  may  have  value  according 
to  this  definition,  it  must  be  capable  of  being  exchanged,  and  of 
satisfying  the  motives  for  exchange.  To  do  this  three  conditions 
are  necessary,  (i)  It  must  have  utility  ;  it  must  have  the  capacity 
to  serve  some  human  purpose,  or  no  one  would  care  to  possess  it. 
(2)  Its  utility  must  depend  upon  human  effort ;  if  it  were  gratui- 
tously supplied  by  nature,  all  could  have  it  free,  and  however 
useful  or  desirable  an  object  may  be  no  one  will  give  any  thing  in 
exchange  for  it  if  they  can  obtain  it  for  nothing.  (3)  It  must  be 
transferable  ;  no  matter  how  useful  an  article  may  be,  or  how  diffi- 
cult to  obtain,  or  how  much  labor  may  be  devoted  to  its  produc- 
tion, unless  it  can  be  transferred  it  is  incapable  of  being  exchanged, 
and  no  one  will  give  any  thing  for  that  which  they  can  never  pos- 
sess. When  these  conditions  are  all  present  at  once,  profitable 
exchange,  and  therefore  economic  value,  becomes  possible. 

SECTION  II. —  The  Relation  of  Value  and  Price. 

John  Stuart  Mill  considers  that  a  clear  understanding  of  eco- 
nomic principles  requires  that  a  discrimination  be  made  between 
value  and  price.  The  former  he  defines  as  the  ratio  in  which 
commodities  will  exchange  for  one  another  ;  the  latter,  that  in 
which  they  will  exchange  for  money.1  In  order  to  maintain  this 
distinction  he  adds  to  the  already  confusingly  numerous  kinds  of 
value,  the  phrase,  "money-value,"  which  has  been  accepted  by  all 

1  "  Principles  of  Political  Economy,"  vol.  i.,  p.  538. 


VALUE  AND  PRICE  IDENTICAL.  93 

leading  writers  since  his  time.1  This  expression,  however,  like 
Adam  Smith's  "  value-in-use,"  and  Ricardo's  "natural-value," 
tends  to  befog  rather  than  to  clarify  the  subject. 

A  little  consideration  will  show  that  there  is  no  more  scientific 
necessity  for  saying  money-value  than  there  is  for  saying  wheat- 
value,  potato  value,  cloth-value,  or  mutton-value.  If  the  word 
price  were  used  in  these  cases  it  would  convey  precisely  the  same 
meaning.  Price,  like  value,  expresses  the  ratio  of  exchange  and 
nothing  else.  Whether  the  exchange  is  commodities  for  com- 
modities, services  for  services,  services  for  commodities,  com- 
modities for  money,  or  money  for  labor,  makes  no  real  differ- 
ence. The  proportion  in  which  either  exchanges  for  the  other 
indicates  the  value  of  each  ;  and  equally  so  is  the  price  of  a  thing 
indicated  by  that  which  is  given  for  it.  Indeed,  we  have  the  ex- 
plicit authority  of  Mill  himself  for  saying  that  "  when  goods  are 
exchanged  for  money  they  are  the  price  of  the  money,  just  as 
much  as  the  money  is  the  price  of  the  goods."1 

Obviously,  then,  the  distinction  betwee'h  value  and  price  is  as 
unnecessary  as  the  use  of  exchange-value  and  natural-value  is  mis- 
leading. Even  admitting  that  price  expresses  only  the  ratio  in 
which  things  or  services  exchange  for  money,  since  all  exchanges 
are  now  constructed  in  terms  of  money,  price  and  value  are  eco- 
nomically equivalent  terms. 

The  distinction  between  price  and  wages,  however,  is  somewhat 
different.  Popular  phrase  has  always  expressed  the  value  of  com- 
modities and  services  in  different  terms  ;  value  or  price  having 
been  used  in  the  case  of  commodities  and  wages  in  the  case 
of  labor.  Although  there  may  be  no  real  technical  necessity  for 
making  this  discrimination,  its  adoption  does  not  lessen  the  clear- 
ness of  statement,  and  its  abolition  would  tend  to  confuse,  rather 
than  to  clarify,  the  mind  of  the  student.  If  it  could  be  shown 
that,  in  the  strictest  sense,  price,  value,  and  wages  all  have  the 
same  meaning,  it  would  certainly  be  a  matter  of  doubtful  ex- 
pediency to  attempt  to  employ  them  as  interchangeable  terms. 
For  while  it  might  not  be  especially  inconvenient  to  call  wages 
the  value,  or  price,  of  labor,  it  would  be  decidedly  novel,  and  not 

1  "I  have  used  the  word  price  as  signifying  the  money-value  of  goods." — 
Walker's  "Political  Economy,"  p.  135. 

*  "  Principles  of  Political  Economy,"  Vol.  II.,  Book  III.,  ch.  viii.,  sec.  2. 


94  MISLEADING  USE   OF  TERMS. 

a  little  misleading,  to  speak  of  the  wages  of  potatoes,  pumpkins, 
or  pine-apples. 

The  unnecessary  distinction  between  value  and  price  has  not 
been  limited  to  mere  nomenclature,  but  it  has  been  carried  to  the 
actual  sphere  of  economic  movement. 

The  accepted  expounders  of  political  economy  emphatically 
deny  the  possibility  of  a  general  rise  or  fall  of  values^  declaring 
it  to  be  "  a  contradiction  in  terms."  Then,  almost  in  the  next 
breath,  they  insist  that  a  general  rise  or  fall  of  prices  can,  and 
frequently  does,  take  place.1  If  every  thing  cannot  rise  or  fall  in 
value  simultaneously,  how  can  the  price  of  every  thing  do  so  ? 
The  usual  reply,  that  price  is  simply  the  ratio  in  which  things  will 
exchange  for  money,  is  wholly  inadequate  to  explain  this  differ- 
ence. For  instance,  if  the  proportion  in  which  commodities  will 
exchange  for  money  were  increased,  that  would,  of  course,  be  a 
fall  in  the  price  of  the  commodities  ;  but  it  would  also  be,  as  Mill 
has  clearly  shown,3  a  rise  in  the  price  of  money  to  exactly  the 
same  extent.  On  the  other  hand,  if  the  ratio  in  which  money  and 
other  commodities  would  exchange  for  wheat  were  increased,  that 
would  be  a  rise  in  the  value  of  wheat  and  a  fall  in  the  value  of 
money  and  all  other  commodities.  Manifestly,  the  rise  of  value 
in  the  one  case  would  be  just  as  general  as  was  the  rise  of  price 
in  the  other  case.  It  is  just  as  impossible  to  have  a  rise  in  price 
without  a  relative  fall  in  the  price  of  some  one  or  more  of  the 
factors  to  the  exchange,  as  it  is  to  have  a  rise  of  value  in  one  or 
more  commodities  without  a  corresponding  fall  in  some  others. 
There  are  absolutely  no  conditions,  actual  or  conceivable,  in  which 
a  variation  of  prices  is  possible,  which  would  not  make  a  similar 
variation  of  values  equally  so.  The  fact  that  the  word/r/V<»  relates 
to  the  ratio  in  which  commodities  exchange  for  money  is  of  no 
more  importance,  either  in  theory  or  practice,  than  if  it  referred 
to  the  ratio  in  which  money  and  other  products  exchanged  for 

1 ' '  Though  there  is  no  such  thing  as  a  general  rise  of  values,  there  is  such  a 
thing  as  a  general  rise  of  prices." — Mill's  "  Principles  of  Political  Economy," 
Vol.  I.,  Book  III.,  chap,  iv.,  sec.  2,  p.  565.  "While  a  general  rise  or  a  general 
fall  of  values  is  a  contradiction  in  terms,  a  general  rise  or  a  general  fall  in  prices 
is  a  perfectly  possible,  as  indeed  it  is  a  not  uncommon  event." — Cairnes  :  "  Some 
Leading  Principles  of  Political  Economy,"  p.  12. 

*"  Principles  of  Political  Economy,"  Vol.  II.,  Book  III.,  chap,  viii.,  sec.  2. 


ERROR  OF  ORTHODOX  THEORY.        i   95 

cotton,  coal,  or  corn  ;  because  the  price  or  value  of  m'ony  is  gov- 
erned, as  we  shall  hereafter  see,  by  exactly  the  same  influences  as 
is  every  thing  else  for  which  it  will  be  received  in  exchange. 
Evidently  there  is  no  good  reason  for  creating  a  distinction 
between  value  and  price,  and  the  accepted  dogma  that  "  though 
there  is  no  such  thing  as  a  general  rise  of  values,  there  is  such  a 
thing  as  a  general  rise  of  prices,"  is  both  confusing  in  theory  and 
fallacious  in  fact. 

SECTION   III. — Is  a  General  Rise  or  Fall  in  the   Vahie    or 
Price  of  Commodities  Possible  f 

Two  points  in  relation  to  value  are  now  clear  :  (i)  that  it  ex- 
presses nothing  but  the  ratio  of  exchange  ;  (2)  that  for  all  the 
purposes  of  economic  science,  value  and  price  are  equivalent 
terms, — hence  any  movement  of  one  is  equally  possible  to  the 
other.  From  this  it  follows  that  if  "  a  general  rise  or  fall  in  the 
value  of  commodities  is  impossible,"  then  there  can  never  be  a 
general  rise  or  fall  of  prices  ;  and  conversely,  if  there  can  be  a 
general  rise  or  fall  in  the  price  of  commodities,  there  may  be 
a  general  rise  or  fall  in  their  value.  That  there  can  be  a  general 
rise  or  fall  in  the  price  of  commodities  our  economists  all  admit  ; 
and  that  there  has  been  a  general  fall  in  the  value  of  commodities 
is  demonstrated  by  the  most  obvious  facts  in  modern  industrial 
history.  Since  value  and  price  are  of  synonymous  import,  and 
a  general  movement  in  the  value  of  commodities  can  and  does 
occur,  an  explanation  of  this  phenomenon,  consistent  with  the 
idea  that  value  simply  expresses  the  ratio  of  exchange,  may 
properly  be  demanded.  The  difficulty  hitherto  experienced  in 
dealing  with  the  question  of  value  has  arisen  from  the  mistaken 
point  of  view  from  which  the  subject  has  been  considered.  The 
error  lies  in  regarding  value  as  a  physical  instead  of  a  social 
phenomenon  ;  and,  consequently,  in  treating  it  as  if  it  referred 
only  to  the  exchange  relation  of  things  to  things,  instead  of  the 
relation  of  things  to  man.  There  are  no  economic  exchanges  in 
which  wealth  constitutes  all  the  elements  ;  for  man — human  ser- 
vice— is  always  the  principal  factor.  All  exchanges  are  made  by 
man  and  for  man — the  object  always  being  to  gratify  some  desire 
for  which  he  must,  directly  or  indirectly,  render  service.  In  the 
last  analysis  exchange  will  always  be  found  to  consist  in  giving 


96  MISTAKEN  POINT  OF  VIEW. 

service  for  gratification — i.e.,  labor  for  wealth,  though  nominally 
different  qualities  of  wealth  are  being  exchanged. 

When  we  say  the  price  of  a  commodity  has  risen  or  fallen 
because  it  will  exchange  for  a  larger  or  smaller  amount  of  gold, 
the  statement  would  have  no  significance  but  for  the  fact  that  the 
variation  in  the  ratio  in  which  the  commodities  exchange  for  gold 
indirectly  expresses  that  in  which  they  will  exchange  for  labor. 
The  rise  in  the  value  of  commodities  means  that  the  articles 
referred  to  have  become  dearer — more  difficult  for  man  to  obtain 
— or  it  means  nothing.  Wheat  cannot  be  either  dear  or  cheap  to 
potatoes  or  to  gold,  any  more  than  shoes  can  be  dear  or  cheap  to 
fishes.  The  value  of  wheat  may  be  high  as  compared  with  that  of 
potatoes  or  gold,  but  it  is  not  high  to  those  articles.  It  is  only 
high  to  man.  Nor  is  it  high  to  him  because  it  will  exchange  for 
a  larger  quantity  of  things,  but  solely  because  it  will  exchange 
for  a  larger  quantity  of  his  labor.  Therefore,  when  we  speak  of 
a  rise  or  fall  in  the  value  of  commodities  we  always  mean,  directly 
or  indirectly,  an  increase  or  diminution  in  the  ratio  in  which 
commodities  will  exchange  for  labor. 

When  we  once  clearly  recognize  that  it  is  the  exchange  relation 
of  wealth  to  man  that  is  to  be  considered,  and  not  merely  the 
relation  of  things  to  each  other,  much  of  the  difficulty  connected 
with  this  subject  disappears.  The  hitherto  inexplicable  phenome- 
non— of  a  general  rise  and  fall  in  the  value  of  commodities — now 
becomes  both  possible  and  entirely  rational.  It  will  readily  be 
seen  that  while  all  commodities  cannot  simultaneously  rise  and 
fall  in  their  relation  to  each  other,  they  can  all  do  so  in  their 
relation  to  labor.  And  since,  ultimately,  it  is  only  to  the  extent 
that  the  ratio  varies  in  which  commodities  exchange  for  labor 
that  their  value  can  rise  or  fall,  it  is  just  as  possible  for  the  value 
of  all  articles  to  rise  and  fall  together  as  it  is  for  any  portion  of 
them  to  do  so. 

There  is  another  phase  of  this  subject  that  has  been  a  con- 
stant source  of  perplexing  controversy,  but  which,  from  this  point 
of  view,  becomes  easy  and  simple  of  explanation.  It  has  been 
held  by  many  able  writers  that,  because  value  expresses  simply  a 
relation,  when  two  commodities  vary  in  the  ratio  in  which  they 
will  exchange  for  each  other  we  cannot  strictly  say  that  the  one  has 
risen  or  that  the  other  has  fallen  in  value,  but  that  both  have 


ERROR   OF  MILL  AND   CAIRNES.  97 

risen  and  fallen  in  relation  to  each  other.  If,  for  example,  two 
bushels  of  potatoes  would  exchange  for  one  bushel  of  wheat  last 
year,  and  one  bushel  of  wheat  will  exchange  for  three  bushels 
of  potatoes  this  year,  they  hold  that  it  is  just  as  correct  to  say 
that  the  value  of  the  wheat  has  risen  as  it  is  to  say  the  value  of 
the  potatoes  has  fallen  ;  that  it  is  simply  a  variation  in  their 
exchange  relations, — the  fall  in  the  one  case  implying  a  rise  in 
the  other,  and  vice  versa.  This  kind  of  reasoning  is  very  perplex- 
ing ;  it  logically  forbids  us  to  speak  of  the  rise  or  fall  in  the  value 
of  commodities  by  depriving  the  expression  of  all  real  significance 
regarding  the  object  to  which  it  refers.  But  when  we  consider 
the  question  from  the  point  of  view  that  value  finally  expresses 
the  exchange  relation,  not  of  things  to  things,  but  of  things  to 
man,  we  have  no  difficulty  in  deciding  whether  the  value  of  the 
potatoes  has  fallen  or  that  of  the  wheat  has  risen.  Then  the 
statement  that  the  value  of  a  given  commodity  has  increased  or 
decreased  is  strictly  correct,  and  conveys  a  specific  idea  regarding 
a  particular  object.  It  always  indicates  the  variation  in  the 
exchange  relation  of  that  commodity  to  labor. 

It  is  therefore  not  correct  to  say,  with  Mill,  Cairnes,  and  others, 
that  a  fall  in  the  value  of  potatoes  as  compared  to  that  of  wheat 
necessarily  implies  a  rise  in  the  value  of  the  wheat.  On  the  con- 
trary, there  may  be  a  simultaneous  rise  or  fall  in  the  value  of  all 
commodities,  or  the  value  of  the  various  commodities  may  rise  or 
fall  in  different  degrees,  or  the  value  of  some  of  them  may  rise 
or  fall,  while  that  of  the  others  remains  entirely  unchanged. 

To  illustrate  this  point  more  fully,  let  us  suppose  that  a  day's 
labor  will  exchange  for  one  bushel  of  wheat,  or  for  two  bushels 
of  potatoes.  In  this  case  the  wheat  will  exchange  for  the  pota- 
toes in  the  ratio  of  one  to  two,  while  it  will  exchange  for  a  day's 
labor  in  the  ratio  of  one  to  one.  The  wheat  is  now  twice  as  dear, 
per  bushel,  as  the  potatoes.  Suppose  that  another  year  a  day's 
labor  will  exchange  for  three  bushels  of  potatoes,  but  it  continues 
to  exchange  evenly  for  one  bushel  of  wheat.  Of  course,  under 
such  conditions,  the  wheat  will  exchange  for  potatoes  in  the  ratio 
of  one  to  three,  instead  of  one  to  two  as  before.  Obviously  the 
value  of  the  potatoes  will  fall  one  third,  because  one  third  more 
of  them  can  be  obtained  for  a  day's  work.  It  cannot  be  said  in 
this  latter  case  that  the  fall  in  the  value  of  the  potatoes  implies 
9 


98  RE  LA  TION  OF  THINGS  TO  MAN. 

a  rise  in  that  of  the  wheat,  because  a  day's  labor  continues  to 
exchange  for  exactly  the  same  amount  of  wheat  as  before. 
Clearly,  therefore,  the  value  of  the  wheat  remains  unchanged 
while  that  of  the  potatoes  falls  one  third.  Nor  does  the  value  of 
the  potatoes  fall  merely,  as  compared  with,  or  in  relation  to,  that 
of  the  wheat,  but  they  become  one  third  cheaper  absolutely 
without  any  regard  to  the  wheat  whatever. 

We  may  be  reminded  that  the  price  of  labor  varies  in  different 
countries,  industries,  and  localities.  But  that  fact  in  no  way 
alters  the  case  ;  whether  the  laborer  gets  fifty  cents  or  five  dol- 
lars a  day  makes  no  real  difference  in  the  operation  of  the  prin- 
ciple. If  one  day's  labor  of  the  fifty-cent  man  will  exchange  for 
ten  pounds  of  flour,  or  two  pounds  of  butter,  then  that  of  the 
five-dollar  man  will  command  a  hundred  pounds  of  flour,  or 
twenty  pounds  of  butter.  Any  variation  in  the  ratio  in  which  the 
flour  or  butter  will  exchange  for  a  day's  service  of  either  of  these 
laborers  will  obtain  with  all  laborers,  and  hence  will  constitute  a 
change  in  the  value  of  those  commodities  to  that  extent.  But  no 
variation  in  the  ratio  in  which  flour  or  butter  will  exchange  for 
any  or  all  other  commodities — including  silver  or  gold  (which  are 
likewise  commodities),  will  make  the  slightest  change  in  their 
value,  unless  it  alters  the  proportion  in  which  they  will  exchange 
for  labor. 

Therefore  it  is  incorrect  to  say  "  a  fall  in  the  value  of  one  or 
more  commodities  necessarily  implies  a  rise  in  that  of  all  other 
commodities,  and  vice  versa."  On  the  contrary,  there  may,  as  we 
have  seen  in  the  case  of  the  potatoes  and  wheat,  be  a  rise  or  fall 
in  the  value  of  one  or  more  articles  in  the  market  without  any 
change  in  that  of  the  others.  But  while  it  is  not  true  that  a  fall 
in  the  value  of  one  or  more  commodities  necessarily  implies  a 
rise  of  that  in  all  others,  it  is  true  that  a  fall  in  the  value  of  any 
•or  all  commodities  implies  a  rise  in  the  value  of  services,  and  vice 
versa.  The  reason  for  this  difference  is  easily  understood.  It  is 
simply  because,  ultimately,  value,  as  applied  to  commodities,  ex- 
presses nothing  but  the  ratio  in  which  they  will  exchange  for 
labor,  and  no  amount  of  increase  in  the  intricate  complexity  of 
the  process  of  exchange  can  alter  this  fact  in  the  slightest  degree. 

It  will  thus  be  seen  that,  when  we  change  our  point  of  view  and 
regard  man  and  his  desires  as  the  centre  of  all  economic  move- 


THE  NEW  POINT  OF  VIEW.  99 

ment, — treating  value  as  a  social  phenomenon  and  using  the  term 
exclusively  to  express  the  exchange  relation  of  things  to  man, — 
the  whole  subject  appears  in  a  new  light.  Then  the  perplexing 
distinctions  between  the  numerous  kinds  of  value,  and  between 
value  and  price,  and  the  difference  in  the  possibility  of  values 
undergoing  the  same  general  rise  or  fall  as  prices,  all  become 
unnecessary. 

The  term  value  being  used  solely  to  express  the  ratio  of  ex- 
change, i.e.,  the. proportion  in  which  man  will  give  service  for 
wealth  or  gratification, — it  will  always  convey  the  same  idea  and 
never  be  misunderstood.  And  if  we  regard  the  word  utility  as 
expressing  simply  the  want-gratifying  qualities  of  any  portion 
of  man's  environment,  its  meaning  is  at  once  simple,  definite,  and 
unmistakable.  Thus  understood,  utility  and  value  both  become 
distinctive,  intelligible  terms — the  former  expressing  the  quality 
for  which  things  are  desired  by  man,  and  the  latter  the  propor 
tion  in  which  he  will  give  his  service  in  exchange  for  them. 
With  these  definitions  it  is  scientifically  correct  to  say  the  value 
or  price  of  any  or  all  commodities  may  rise  or  fall  separately  or 
simultaneously.  Indeed,  were  it  otherwise,  social  progress  would 
be  impossible,  because  it  is  only  in  proportion  as  wealth  in  gen- 
eral becomes  cheaper  that  human  well-being  can  be  increased. 

In  order  to  furnish  a  scientific  basis  for  increasing  the  ratio  in 
which  labor  exchanges  for  wealth  in  accordance  with  the  uncon- 
scious operation  of  social  law,  it  is  necessary,  first  of  all,  to 
understand  the  principle  upon  which  different  quantities  of  the 
various  kinds  of  wealth  and  service  become  economic  equiva- 
lents. This  will  explain  the  law  of  economic  value  and  will  next 
occupy  our  attention. 


CHAPTER  III. 

DEMAND  AND  SUPPLY  NOT  THE  LAW  OF  ECONOMIC 

PRICES. 

SECTION  I. —  The  Doctrine  Stated. 

MILL  says  :  "  A  writer  does  but  half  his  duty  by  stating  his  own 
doctrines  if  he  does  not  also  examine,  and  to  the  best  of  his 
ability  judge,  those  of  other  thinkers."  While  this  is  true  of  all 
questions  in  economics,  it  is  especially  true  of  the  doctrine  of 
prices.  No  treatment  of  that  subject  can  be  complete  which  does 
not  consider  the  claims  of  the  theory  of  supply  and  demand — a 
theory  which  is  practically  universal.  Although  the  question  of 
prices  has  never  been  free  from  controversy  since  the  time  of 
Adam  Smith,  scarcely  a  book  on  economics  has  been  published 
subsequent  to  "  Wealth  of  Nations  "  in  which  the  ratio  between 
supply  and  demand  has  not,  expressly  or  tacitly,  been  accepted  as 
the  law  of  prices.1 

This  doctrine  affirms  :  (i)  That  under  free  competition  (i.e., 
in  the  absence  of  arbitrary  barriers)  there  cannot  be  two  prices 
for  the  same  commodity  in  the  same  market.  (2)  That  when  the 
supply  and  the  demand  are  equal  the  price  is  the  exact  equiva- 
lent of  the  cost  of  production.  (3)  That  the  price  rises  as  the 
demand  exceeds  the  supply,  and  falls  as  the  supply  exceeds  the 
demand  ;  and,  "  the  rise  or  fall  continues  until  the  demand  and 
the  supply  are  again  equal  to  one  another."  In  order  to  sustain 

'Perry's  "Political  Economy,"  p.  211.  Mill's  "Principles  of  Political 
Economy,"  Vol.  I.,  Book  III.,  ch.  ii.,  p.  252.  Price's  "Practical  Political 
Economy,"  p.  iSS.  Jevons'  "  Theory  of  Political  Economy,"  p.  6.  (Preface). 
MacLeod's  "Elements  of  Political  Economy,"  p.  in.  Cairnes'  "Leading 
Principles  of  Political  Economy,"  p.  183. 

100 


GREGOR  Y  KING  'S  LAW.  IOI 

this  claim,  two  propositions  must  be  established  :  (a]  that  the 
value  of  all  commodities  and  services  always  rises  and  falls  as  the 
demand  exceeds  or  falls  short  of  the  supply  ;  which  movement 
"  continues  until  the  demand  and  the  supply  are  equal "  ;  (£)  that 
the  variation  in  the  price  is  produced  by  the  alternation  in  the  ratio 
of  the  demand  and  supply.  Unless  these  postulates  can  be  sus- 
tained, the  doctrine  of  demand  and  supply  must  be  rejected  as 
inadequate  to  furnish  a  scientific  law  of  value.  Although  this 
doctrine  has  always  been  held  to  apply  to  both  commodities  and 
labor,  in  order  to  simplify  the  discussion  we  will  consider  it  in 
relation  to  these  factors  separately,  taking  commodities  first. 

In  the  seventeenth  century,  Gregory  King  observed  that  the 
price  of  commodities  varied  with  the  demand  and  supply  as 
follows  : 

A  decrease  in  the  supply  of  : 

1  tenth  raises  the  price  above  the  common  rate  3      tenths. 

2  tenths  "       "         "         "       "         "  "      8     tenths. 

3  tenths  "       "         "         "      "         "          "      1-6  tenths. 

4  tenths  "       "         "         "      "         "  "      2-8  tenths. 

5  tenths  "       "         "         "       "         "  "      4-5  tenths. 

Despite  the  modifying  effect  of  the  "  cost  ot  production,"  in- 
troduced by  Smith  and  Ricardo,  this  scale  of  variation  in  prices, 
which  was  based  entirely  upon  agricultural  products,  has  been 
practically  accepted  as  the  law  of  all  prices  ever  since.  Even 
Thorold  Rogers  repeats  this  formula  in  his  latest  work,  with 
emphatic  indorsement  as  "  one  of  the  most  important  generaliza- 
tions in  statistics,  and  applicable  to  all  values  whatever."  ' 

The  reason  the  early  writers  upon  this  subject  confined  their 
studies  chiefly  to  agricultural  products  is  not  difficult  to  under- 
stand. During  the  time  of  Gregory  King  and  even  down  to 
the  nineteenth  century,  agricultural  products  constituted  the 
chief  articles  of  consumption  for  the  great  mass  of  the  commu- 
nity. During  the  present  century,  and  especially  the  last  fifty 
years,  this  has  been  greatly  changed.  The  proportion  in  which 
manufactured,  as  compared  with  agricultural,  products  enter  into 
the  daily  consumption,  is  steadily  increasing  as  civilization 

1  "  Eonomic  Interpretation  of  History,"  p.  55  (1888).  Jevons  reaffirms  it  in 
his  "  theory  of  Political  Economy,"  pp.  168-171. 


102  AGRICULTURAL  PRODUCTS. 

advances.  Consequently  if  the  agricultural  hypothesis  furnishes 
the  true  law  of  prices,  it  must  be  applicable  to  the  prices  of  man- 
ufactured as  well  as  agricultural  products. 

Of  course  the  true  law  of  prices  must  explain  the  movement  of 
all  prices,  but  no  hypothesis  can  be  assumed  to  do  so  merely 
because  it  affords  a  seeming  explanation  of  one  class  of  prices. 
The  recognition  of  this  fact  is  especially  important  in  this 
connection  because  the  production  of  manufactured  and  agricul- 
tural commodities  is  frequently  affected  by  widely  different 
influences.  In  agriculture  the  quantity  and  quality  of  products 
are  often  largely  determined  by  purely  cosmical  forces — the 
operation  of  which  is  entirely  outside  the  domain  of  economic 
law, — while,  in  manufacture,  nearly  all  the  influences  affecting 
production  are  economic  and  social.  Consequently  we  may 
naturally  expect  to  find  any  theory  constructed  upon  purely 
agricultural  data  to  be  inadequate  to  explain  the  prices  of  manu- 
factured products. 

It  is  undoubtedly  true  that  the  price  of  wheat,  potatoes,  apples, 
peaches,  or  any  other  farm  or  garden  product  tends  to  rise  or 
fall  with  the  relative  increase  or  diminution  of  the  demand  or  the 
supply.  The  fact  that  the  price  of  wheat  will  rise  with  a  failure 
of  the  crop  and  fall  with  an  abundant  yield  may  be  counted 
upon  as  unmistakably  as  any  other  fact  in  nature.  If  is  also 
true  that  in  all  such  cases  the  rise  or  fall  in  the  price  continues 
until  the  demand  and  supply  are  approximately  equal.  Nor  is 
there  any  doubt  that  this  rise  or  fall  in  the  price  of  agricultural 
products  indicates  a  corresponding  change  in  the  ratio  in  which 
they  will  exchange  as  economic  equivalents.  So  far  as  agricul- 
tural products  are  concerned,  therefore,  the  facts  seem  to  accord 
with  the  theory.1 

Let  us  now  see  how  the  case  stands  with  the  price  of  manufac- 
tured products.  According  to  this  hypothesis,  whenever  the 
quantity  of  cotton  cloth,  shoes,  or  other  manufactured  commod- 
ities is  greater  than  the  quantity  effectually  demanded,  the  price 

1  This  will  be  true,  however,  only  so  far  as  the  variation  in  the  demand  and 
supply  is  due  to  cosmical  influences,  such  as  favorable  or  unfavorable  seasons. 
But  if  the  over-supply  should  be  due  to  the  cultivation  of  a  larger  number  of 
acres  under  traditional  conditions  this  would  not  occur,  and  any  fall  in  the 
price  would  involve  loss  or  bankruptcy  to  the  farmer. 


MANUFACTURED  PRODUCTS.  103 

of  the  article  will  fall,  and  the  fall  will  continue  until  the  demand 
and  the  supply  are  equal.'  If  this  theory  were  correct,  there 
could  never  be  what  is  called,  "an  over-production,"  at  least, 
until  the  quantity  of  cloth,  shoes,  etc.,  was  so  great  that  they 
could  not  be  consumed  at  any  price.  Because,  it  will  be  remem- 
bered, if  the  supply  more  than  equals  the  demand  the  price  will 
fall  to  "  the  point  which  equalizes  the  demand  and  the  supply," 2 — 
which  must  be  the  point  at  which  all  the  product  can  be  sold. 
As  a  matter  of  fact,  this  is  what  almost  never  occurs  under  such 
circumstances.  There  is  probably  no  large  manufacturing  and 
commercial  centre  in  the  world  in  which  the  supply  of  a  large 
number  of  commodities  is  not  greatly  in  excess  of  the  demand. 
And  yet  the  price  does  not  continuously  fall,  but  in  a  very  large 
majority  of  such  cases  remains  practically  steady  for  years  together. 

Industrial  depressions  are  specifically  cases  of  this  kind.  The 
characteristic  feature  of  an  industrial  depression  is  that  manufac- 
tured commodities  are  produced  in  greater  quantities  than  they 
can  be  sold.  The  expression  "over-production"  simply  means 
that  the  supply  is  in  excess  of  the  demand.  Instead  of  the 
movement  of  prices  under  these  conditions  being  that  which  is 
predicated  by  the  demand-and-supply  theory,  it  is  entirely  differ- 
ent. There  is  a  tendency  to  equalize  the  demand  and  supply, 
but  it  is  brought  about  by  an  entirely  different  process  than  the 
fall  in  prices  ;  as  laid  down  in  the  popular  theory. 

The  first  symptoms  of  an  over-production,  or  excess  of  supply, 
is  the  difficulty  in  selling  the  entire  product.  This  will  generally 
be  followed  by  an  increased  competition  among  the  manufac- 
turers and  merchants — especially  those  who  have  large  margins 
— and  will  tend  to  reduce  the  price  toward  the  point  at  which 
they  can  barely  sell  without  loss — which  point  is  nearly  always 
reached  long  before  the  demand  and  supply  are  equalized. 
Here,  however,  an  entirely  different  movement  sets  in  and  the 
fall  is  transferred  from  the  price  to  the  quantity  of  the  commod- 
ity. Instead  of  the  price  continuing  to  decline  until  an  equilib- 
rium between  demand  and  supply  is  reached,  the  fall  in  price  is 
arrested  at  the  no-profit  point,  and  the  decline  in  the  amount  of 
sales  commences.  As  the  sales  fall  off  warehouses  are  filled, 

1  "Principles  of  Political  Economy,"  vol.  i.,  pp.  551,  552. 
"  Ibid.,  p.  550. 


IO4  RICARDO   SAW  THE   FALLACY. 

profits  shrink,  and  the  incentives  to  produce  are  diminished  ; 
hence  the  supply  is  curtailed  to  prevent  further  loss.  Thus,  in- 
stead of  the  demand  and  the  supply  being  equalized  by  a  contin- 
uous fall  in  the  price  and  larger  sales,  that  result  is  reached  by 
lessening  production — which  involves  the  closing  of  factories, 
enforced  idleness  of  laborers,  and  sometimes  the  bankruptcy  of 
manufacturers  and  merchants.1  It  will  be  seen,  therefore,  that 
the  equilibrium  between  demand  and  supply  is  reached — if 
reached  at  all  —by  reducing  the  supply  to  the  dimensions  of  the 
demand  at  paying  prices,  and  not  by  lowering  the  prices  to  that  of 
demand  and  supply.  Moreover,  if  the  price  of  commodities 
under  these  conditions  continued  to  fall  until  the  demand  and 
the  supply  were  equalized,  as  in  agriculture,  it  would  not  be,  as 
in  that  case,  an  exchange  of  economic  equivalents,  but  it  would 
be  a  highly  uneconomic  exchange,  involving  continuous  loss,  and 
probably  ruin,  to  the  producers. 

Were  the  conditions  reversed  the  same  principle  would  govern 
the  movement  of  the  phenomenon.  If  the  demand  for  shoes 
greatly  exceeded  the  supply,  the  demand  and  supply  would  not 
be  equalized  by  the  increased  price,  but  by  an  increase  in  the 
supply.  It  is  exactly  under  such  conditions  that  new  factories, 
with  improved  methods,  come  into  existence.  This  gives  more 
employment  to  labor  ;  enlarges  the  market ;  cheapens  the  cost  of 
production  ;  and  tends  to  make  profitable  sales  at  lower  prices 
possible.  Thus  it  is  clear  that  the  price  does  not  necessarily  fall 
when  the  supply  exceeds  the  demand,  nor  rise  when  the  demand 
exceeds  the  supply.  This  much  of  the  fallacy  of  the  demand- 
and-supply  theory  was  evidently  clear  to  Ricardo,  who  probably 
had  more  glimpses  of  fundamental  truth  in  economics  than  any 
other  writer  of  this  century.  He  says 8 :  "  Diminish  the  cost  of 
production  of  hats,  and  their  price  will  ultimately  fall  to  their 
new  natural  price,  although  the  demand  shall  be  doubled, 
trebled,  or  quadrupled.  Diminish  the  cost  of  subsistence  of  men, 
by  diminishing  the  natural  price  of  the  food  and  clothing  by 
which  life  is  sustained,  and  wages  will  ultimately  fall,  notwith- 
standing that  the  demand  for  laborers  may  very  greatly  increase." 

'  This  is  equally  true  of  agriculture  where  the  increased  supply  or  over-pro- 
duction is  due  to  increased  investment  instead  of  gratuitous  natural  forces. 
2  "  Principles  of  Political  Economy  and  Taxation,"  ch.  xxx.,  p.  232. 


THE    THEORY  DOES  NOT  FIT   7^HE  FACTS.  IO5 

There  is  still  another  important  fact  that  here  presents  itself 
for  the  demand-  and-  supply  theory  to  explain.  If  the  value  of 
commodities  is  governed  by  the  ratio  between  the  demand  and 
the  supply,  why  has  the  value  of  manufactured  articles  steadily 
fallen  during  the  present  century,  in  some  cases  sixty  and  seventy 
per  cent.,  while  the  value  of  farm  and  garden  products  has  gen- 
erally risen,  and  in  some  cases  very  considerably.  It  cannot  be 
because  the  relative  demand  for  agricultural  products,  as  com- 
pared with  the  supply,  has  been  greater  than  that  for  manufac- 
tured commodities,  because,  in  that  case,  the  profits  of  agriculture 
would  have  been  greater  during  the  period  than  those  of  manu- 
facture and  trade,  whereas  the  reverse  is  true.  For  the  same 
reason  the  fall  in  the  price  of  manufactured  articles  cannot  be 
attributed  to  the  excess  of  supply  as  compared  with  agriculture. 
Now,  if  the  normal  price  of  commodities  were  governed  by  the 
ratio  between  demand  and  supply,  this  phenomenon  would  be  an 
economic  impossibility.  Nor  can  it  be  objected  that  the  fall  in 
the  price  of  manufactured  articles  is  like  that  in  the  auction  sale, 
— at  the  expense  of  the  seller.  The  manufacturers  of  cotton 
cloth,  who  to-day  sell  their  product  at  four  cents  a  yard,  are 
economically  as  well  off  as  were  those  who  received  eighteen  or 
twenty  cents  a  yard  a  hundred  years  ago.  In  other  words,  to 
give  twenty  yards  of  cotton  cloth  for  one  dollar  to-day  is  just  as 
equitable  an  exchange  of  economic  equivalents  as  it  was  to  obtain 
a  dollar  for  six  yards  in  1820.  This  is  not  the  exception,  but  the 
rule,  and  represents  the  normal  economic  movement  in  modern 
society  ;  clearly  therefore  the  theory  of  demand  and  supply  is 
wholly  inadequate  to  explain  the  movement  in  the  economic  price 
of  commodities. 

SECTION  II. — Does  tlie  Price  of  Labor  Obey  the  Law  of 
Demand  and  Supply  ? 

In  the  case  of  labor  the  failure  of  this  theory  will  be  found  to 
be  no  less  conspicuous.  If  the  doctrine  were  true,  that  wages 
always  fall  when  the  supply  of  labor  is  in  excess  of  the  demand, 
enforced  idleness  or  able-bodied  pauperism  would  be  impossible, 
as  we  have  elsewhere  pointed  out.'  In  that  case,  as  soon  as  un- 

1  "  Wealth  and  Progress,"  Part  II.,  ch.  i.,  sec.  i. 


106  WAGES  FAIL  TO   OBEY  THE  LAW. 

employed  laborers  appeared  wages  would  begin  to  fall,  and  the 
fall  would  continue  until  all  the  laborers  were  employed  at  some 
price,  that  being  the  only  point  at  which  the  demand  and  the 
supply  could  be  equalized.  So  far  from  this  being  the  rule,  there 
is  not  a  country  in  all  the  world  in  which  it  ever  occurred.  There 
may  have  been  times  and  places  when  laborers  were  all  employed, 
but  this  was  never  accomplished  by  the  lowering  of  wages. 
History  does  not  afford  a  single  instance  of  abolishing  enforced 
idleness,  and  reducing  able-bodied  pauperism,  by  that  means. 
Such  a  phenomenon  is  an  economic  impossibility.  Every  fall  of 
wages  tends  to  lessen  the  general  consumption  of  wealth,  and 
i  thereby  diminish  rather  than  increase  the  employment  of  labor. 
As  a  matter  of  fact,  wages  do  not  fall ;  any  thing  like  a  general 
fall  of  real  wages  is  practically  an  unknown  phenomenon. 

It  is  one  of  the  distinguishing  characteristics  of  the  history  of 
industrial  evolution  that,  since  the  dawn  of  the  wage-system, 
neither  royal  authority,  civil  law,  religious  dogma,  or  any  other 
industrial  or  social  pressure,  has  been  able  to  permanently  force 
the  price  of  labor  below  the  point  that  has  once  been  generally 
established  in  a  community,  although  the  supply  has  frequently 
been  greatly  in  excess  of  the  demand.  The  statistics  of  able- 
bodied  pauperism,  and  the  history  of  poor-law  legislation,  furnish 
abundant  evidence  of  the  over-supply  of  labor  during  the  last 
three  hundred  years.  The  same  fact  is  clearly  shown  in  the 
economic  literature  of  the  period,  which  abounds  with  the  dis- 
cussion of  the  pauper  problem.  It  was  the  alarming  extent  to 
which  the  supply  of  labor  was  continuously  in  excess  of  the  de- 
mand, which  gave  rise  to  the  Malthusian  doctrine  of  limiting  the 
population  by  curtailing  births  among  the  laboring  class.  This 
doctrine  has  been  generally  accepted  by  economists  during  the 
present  century,  both  in  Europe  and  this  country,  as  the  only 
means  of  raising  wages.  Yet  in  the  face  of  this  continuous  over- 
supply  of  labor,  wages  have  risen  seven  hundred  per  cent.  It  is 
therefore  clear  that  wages  do  not  necessarily  fall  when  the  supply 
of  labor  is  in  excess  of  the  demand,  but  that  they  may,  and  often 
do,  rise  in  spite  of  that  fact.  It  is  very  doubtful  if  it  can  be 
shown  that  a  single  step  in  the  rise  of  wages,  from  twelve  cents 
to  two  dollars  a  day,  has  taken  place  in  accordance  with  the 
doctrine  of  demand  and  supply,  but  almost  invariably  contrary 


THE  BASES  OF  EQUIVALENCE.  IO/ 

to  it.  Obviously,  therefore,  the  first  postulate  upon  which  the 
demand-  and  supply-theory  is  based,  namely,  that  the  prices  of 
all  commodities  and  labor  rise  and  fall  as  the  relative  demand 
exceeds  or  falls  short  of  the  supply,  utterly  fails. 

SECTION  III. — Economic  Prices  cannot  Possibly  be  Determined 
by  the  Mere  Ratio  between  Demand  and  Supply. 

We  come  now  to  the  second  postulate  upon  which  this  theory 
rests,  namely,  that  the  variation  in  the  price  of  commodities  and 
labor  is  caused  by  the  alteration  in  the  rate  of  demand  and  supply. 
Although  the  variation  in  price  may  often  be  similar  to  that  in 
the  demand  and  the  supply,  it  can  easily  be  shown  that  the  mere 
proportion  between  the  quantity  demanded  and  supplied  cannot 
possibly  determine  economic  value.  The  very  idea  of  value  is 
quid  pro  quo.  The  conception  of  economic  exchange  necessarily 
implies  that  each  obtains  an  equivalent  for  what  he  gives. 
Therefore,  in  seeking  the  law  of  value,  we  are  not  seeking  to  ex- 
plain that  process  of  exchange  by  which,  through  ignorance, 
fraud,  and  other  devices,  one  can  get  the  advantage  of  another  ; 
but  we  are  seeking  the  law  by  which  different  quantities  of  various 
kinds  of  wealth  and  service  can  be  equitably  exchanged  as  the 
economic  equivalents  of  each  other,  and  according  to  which  a 
given  amount  of  service  can  become  the  equivalent  of  an  increas- 
ingly large  amount  of  wealth. 

In  what  sense,  then,  are  'commodities  the  equivalents  of  each 
other  ?  It  cannot  be  their  similarity  in  quantity,  quality,  or 
form,  because  it  is  their  very  dissimilarity  in  these  respects  which 
makes  their  exchange  desirable  and  necessary.  The  only  sense 
in  which  different  quantities  of  various  kinds  of  commodities  and 
services  can  be  the  equivalents  of  each  other  is  as  economic 
products — i.e.,  in  the  sense  that  they  represent  the  same  amount 
of  economic  expenditure.  An  econonomic  equivalent  is  that 
which  will  afford  as  much  gratification  to  the  buyer  as  he  could, 
with  due  preparation,  otherwise  have  obtained  by  the  wealth  and 
service  devoted  to  procuring  that  which  he  gave  for  it.  Can  this 
be  in  any  way  affected  by  the  mere  presence  or  absence  of 
quantity  ?  Is  there  any  thing  in  the  fact  that  the  demand  is 
greater  or  smaller,  or  equal  to  the  supply,  that  can  make  differ- 


108  MCCULLOCH* S  TESTIMONY. 

ent  quantities  of  wealth  and  service, — the  procuring  of  which 
involves  different  amounts  of  expenditure, — the  economic  equiv- 
alents of  each  other  ? ' 

If  one  gives  a  day's  labor  to  procure  a  pair  of  shoes,  and  then 
exchanges  the  shoes  for  twenty  grains  of  gold,  unless  he  can 
obtain  as  much  of  other  commodities,  or  service,  for  the  gold  as  he 
could  for  the  labor  that  he  put  into  the  shoes,  the  gold  is  not  the 
economic  equivalent  of  the  shoes.  Whether  or  not  the  gold  will 
reimburse  him  for  making  the  shoes — i.e.,  will  be  an  equivalent 
for  the  shoes — cannot  possibly  be  affected  by  the  mere  fact  that 
there  are  many  or  few  grains  of  gold.  The  ability  to  exchange  a 
pair  of  shoes  for  twenty  grains  of  gold,  as  an  equivalent,  can  no 
more  be  affected  by  an  increase  or  a  decrease  in  the  number  of 
shoes  or  the  quantity  of  gold  than  the  weight  of  a  pound  of  lead 
can  be  affected  by  the  presence  of  a  larger  or  smaller  number  of 
pounds  of  lead.  There  is  absolutely  nothing  that  can  enable  a 
man  to  give  his  shoes  for  the  gold,  without  losing,  which  does  not 
enable  him  to  obtain  the  shoes  with  a  smaller  amount  of  wealth 
and  service.  McCulloch  pointedly  remarks  2  :  "  No  variation  of 
demand,  if  it  be  unaccompanied  by  a  variation  in  the  cost  of 
production,  can  have  any  lasting  influence  in  price.  If  the  cost 
of  production  be  diminished,  price  will  be  equally  diminished, 
though  the  demand  should  be  increased  to  any  conceivable  ex- 
tent. If  the  cost  of  production  be  increased,  price  will  be  equally 
increased,  though  the  demand  should  sink  to  the  lowest  possible 
limit."  As  the  proportion  between  the  demand  and  supply  can- 
not enable  the  producers  of  either  gold  or  shoes  to  make  their 
articles  one  fraction  cheaper,  it  canot  affect  the  ratio  in  which 
these  articles  will  exchange  as  economic  equivalents,  and  conse- 
quently cannot  determine  their  economic  value. 

To  recapitulate,  then,  four  important  facts  are  established, — 
any  one  of  which  is  sufficient  to  invalidate  the  claim  of  the  theory 
that  the  ratio  between  demand  and  supply  is  the  law  of  economic 
prices.  They  are  :  (i)  That  the  value  of  commodities  and  labor 
does  not  always  rise  and  fall  as  the  demand  exceeds  or  falls  short 
of  the  supply,  and  so  continue  until  the  demand  and  the  supply 
are  equalized.  (2)  That  prices  may  and  do  rise  when  the  supply 

1  De  Quincey's  "  Logic  of  Political  Economy,"  p.  8. 

"  "  Principles  of  Political  Economy,"  Part  III.,  sec.  iii.,  p.  137. 


CAIRNES'   ERROR.  1 (X) 

is  in  excess  of  the  demand,  and  fall  when  the  demand  is  in  excess 
of  the  supply.  (3)  That  prices  may  and  do  rise  or  fall  without 
any  perceptible  change  in  the  ratio  between  the  demand  and  the 
supply.  (4)  That,  from  the  nature  of  things,  it  is  impossible  for 
the  mere  scarcity  or  abundance  of  quantity  to  alter  the  ratio  in 
which  different  quantities  of  wealth  and  service  become  economic 
equivalents  of  each  other. 

SECTION  IV. —  The  Economic  Relation  of  Demand  to  Supply. 

Sometimes  the  most  effective  way  of  showing  what  a  thing  is 
not,  is  to  to  explain  what  it  is.  The  error  of  the  doctrine  that 
economic  prices  are  determined  by  the  ratio  between  demand 
and  supply  will  become  still  more  apparent  if  we  examine  the 
economic  relation  which  these  phenomena  sustain  to  each  other. 
We  shall  then  see  that  this  quantitative  relation  is  more  the  con- 
sequence than  the  cause  of  economic  prices. 

Attention  has  already  been  called  to  the  fact  that,  while  econo- 
mists have  denned  value  as  the  ratio  in  which  quantities  exchange, 
they  have  treated  the  subject  as  relating  exclusively  to  wealth. 
The  natural  outcome  of  this  position  is  that  even  such  a  careful 
writer  as  Cairnes  *  has  insisted,  that  demand  and  supply  are  iden- 
tical phenomena — "  Simply  different  faces  of  the  same  fact." 
The  only  effectual  demand  being  actual  supply,  and  vice  versa. 
Consequently,  the  only  way  to  increase  the  demand  for  one  class 
of  commodities  is  to  enlarge  the  production  of  other  commodities 
to  exchange  for  them,  or,  as  Cairnes  a  expressly  states  :  "  Pur- 
chasing power,  in  the  last  resort,  owes  its  existence  to  the  pro- 
duction of  a  commodity  and,  the  conditions  of  industry  being 
given,  can  only  be  increased  by  increasing  the  quantity  of  com- 
modities offered  for  sale  ;  that  is  to  say,  demand  can  only  be 
increased  by  increasing  supply."  Accordingly,  the  panacea  for 
a  glutted  market — "  over-production  " — is  more  production, — a 
delightful  tonic  for  industrial  depressions. 

The  inevitable  effect  of  this  view  of  the  subject,  which  limits 
economic  phenomena  to  wealth  and  makes  demand  and  supply 
identical  facts, — each  equally  dependent  upon  the  other — is  to 

"Some  Leading  Principles  of  Political  Economy,"  ch.  ii. 
*  Ibid.,  p.  31. 


IIO  MISTAKEN  IDEA    OF  DEMAND. 

reduce  economic  movement  to  a  vicious  circle  and  make  progress 
impossible.  The  result  of  this  class  of  reasoning  was  recently 
illustrated  in  the  attitude  of  a  gentleman,  who  had  devoted  more 
than  a  generation  to  the  study  of  economics,  and  had  digested 
the  literature  of  several  languages  upon  the  subject.  He  clearly 
saw  the  social  necessity  of  doing  something  to  improve  the  labor- 
er's condition  ;  but  it  was  equally  clear  to  him  that  this  must  be 
done  by  scientific  means.  He  said  (and  in  a  protracted  cor- 
respondence repeated  the  argument  in  several  ways):  "  We  are  all 
anxious  that  the  laborer  should  receive  more  wealth.  This  he 
can  do  in  but  one  of  three  ways  :  by  theft,  charity,  or  economic 
exchange.  To  increase  his  income  through  either  of  the  first  two 
would  be  to  injure  instead  of  to  help  him,  and  he  can  only  obtain 
more  wealth  through  exchange  by  having  more  to  give  for  it, 
which  is  exactly  what  he  lacks.  Therefore,"  exclaimed  the  gen- 
tleman, "  unless  you  can  show  how  the  laborer  can  be  put  into 
possession  of  something  to  give  in  exchange  for  the  wealth  he 
desires,  there  is  no  feasible  way  by  which  society  can  economi- 
cally increase  his  income."  Thus,  by  the  logic  of  his  position, 
my  friend  was  forced  into  the  vicious  circle  where  he  finally  was 
compelled  to  exclaim  :  "  There  is  no  way  by  which  society  can 
increase  wages  ;  that  question  must  be  left  to  settle  itself  by 
natural  law."  Consequently,  like  most  of  the  leading  economists 
of  the  present  century,  he  was  compelled  to  assume  the  negative, 
pessimistic  position  of  laissez-faire,  and,  in  spice  of  himself, 
become  an  ardent  free-trader,  though  very  desirous  of  being  a 
social  reformer. 

The  intellectual  quagmire  into  which  this  argument  leads  is 
due  to  the  mistaken  definition  of  "  demand.  It  is  a  radical  error 
to  regard  demand  and  supply  as  identical  phenomena,  and 
assume  "  that  demand  can  only  be  increased  by  increasing  the 
quantity  of  commodities  offered  for  sale."  As  a  matter  of  fact, 
not  one  tenth  of  the  world's  demand  consists  in  "  commodities 
offered  for  sale."  The  great  market  of  the  modern  world  is 
made  by  the  daily  wants  of  the  people  who  have  practically  no 
commodities  to  offer  for  sale.  All  they  have  to  offer  for  sale  is 
service,  and  it  is  with  that  they  purchase.  When  we  once  recog- 
nize the  fact  that  all  exchanges  are  ultimately  the  exchange  of 
wealth  for  service,  and  not  wealth  for  wealth,  this  matter  assumes 


DEMAND  THE   CAUSE   OF  SUPPLY.  Ill 

a  new  aspect  and  the  pessimistic  vicious  circle  disappears.  In- 
stead of  saying  that  all  demand  for  commodities  is  the  supply  of 
commodities  offered  for  sale,  we  shall  then  say  :  the  demand  for 
commodities  is  the  desire  to  consume  them,  coupled  with  the  supply  of 
service  necessary  to  produce  their  equivalent. 

From  this  view  there  is  no  difficulty  in  seeing  how  the  demand 
may  be  increased,  and,  through  it,  the  supply  enlarged.  It  is 
undoubtedly  true  that  demand  and  supply  are  closely  related 
and  interdependent,  but  they  are  not  identical  phenomena.  The 
distinction  and  economic  relation  of  demand  and  supply  will  be 
greatly  simplified  if  we  keep  two  obvious  facts  in  mind,  namely : 
that  no  matter  how  complex  the  relations,  or  how  involved  the 
phenomena,  demand  always  means  want — consumption,  and  supply 
means  service — production. 

Although  Bastiat's  statement  of  "  wants,  effort,  and  satisfaction" 
is  correct,  it  should  be  remembered  that  the  first  two  only  are 
active  forces.  The  first  represents  the  active  feeling  or  motive  ; 
the  second,  the  effort  or  action.  The  third  is  simply  the  result 
of  these  ;  it  is  the  actualization  of  the  first,  of  which  the  second 
is  the  means.  To-day's  wants  determine  to-morrow's  efforts,  and 
yesterday's  actual  consumption  determines  to-day's  actual  pro- 
duction. Clearly,  then,  consumption  is  not  only  potentially  prior 
to,  but  it  is  actually  the  cause  of  production.  Since  consumption 
constitutes  the  actual  demand,  and  production  the  actual  supply, 
it  follows  that  demand  is  the  cause  of  supply. 

There  is  no  more  obvious  fact  in  economic  experience  than 
that  supply  follows  the  line  of,  adapts  itself  to,  and  finally  de- 
pends upon,  demand.  This  is  why  mankind  always  lives  from 
hand  to  mouth,  as  it  were,  and  society  can  never  be  made  to  per- 
manently produce  more  than  will  supply  the  normal  current  de- 
mand in  any  state  of  civilization.  Indeed,  were  it  otherwise, 
industrial  depressions  would  increase  instead  of  social  welfare 
being  promoted.  It  is  for  this  reason  that  nothing  can  per- 
manently increase  the  quantity  and  reduce  the  cost  of  wealth 
which  does  not  multiply  the  wants,  enlarge  the  consumption,  and 
therefore  expand  the  social  character  of  the  people. 

The  way  in  which  demand  exercises  its  controlling  influence 
over  supply  is  through  the  instrumentality  of  value  or  price. 
Upon  the  same  principle  that  man  will  not  give  something  for 


112  HOW  PRICE  ARISES. 

nothing,  he  will  refuse  to  supply  the  wants  or  demands  of  others 
except  on  the  conditions  that  he  obtains  an  equivalent  in  return. 
It  is  only  when  the  demand  is  strong  enough  to  induce  the  giving 
of  full  equivalents  for  the  efforts  of  production, — i.e.,  a  price 
equal  to  the  cost — that  a  continuous  supply  will  be  forthcoming. 
Supply,  then,  not  only  depends  upon  demand,  but  it  depends  upon 
demand  at  a  certain  price.  Demand  really  creates  the  price,  and 
the  price  induces  the  supply. 

In  order  to  more  clearly  see  the  economic  relation  of  these 
phenomena,  let  us  suppose  the  existence  of  a  community  where 
the  division  of  labor  and  exchange  have  not  yet  made  their  ap- 
pearance ;  where  there  is  neither  buying,  selling,  nor  barter. 
Here  demand  and  supply,  exchange  and  value,  are  unknown  ; 
every  one  supplies  his  own  needs  by  his  own  personal  efforts. 
Let  us  further  suppose  that  some  one  person  in  this  community, 
more  ingenious  than  the  rest,  contrives  to  make  a  bow  and  arrow, 
by  the  aid  of  which  he  is  soon  able  to  procure  more  game  in  one 
day  than  he  previously  could  in  three  or  four.  No  sooner  has 
the  advantage  of  this  new  weapon  become  known  than  others 
want  it.  How  to  obtain  bows  and  arrows  is  now  the  question, 
and  the  price-creating  forces  at  once  begin  to  operate.  Since 
the  advantage  of  the  new  instrument  in  getting  a  living  is  so 
great,  all  who  are  unable  to  make  it  for  themselves  are  willing  to 
give  something  to  obtain  one  from  others.  Here  the  want  begins 
to  assume  the  form  of  an  economic  demand,  and  price  emerges. 
How  much  will  he  give  ?  A  deer  is  offered  for  the  bow  and 
arrow.  Whether  the  offer  is  accepted  or  not,  the  bow  and  arrow 
now  have  a  price.  It  is  one  deer,  but  this  is  not  enough.  The 
maker  of  the  bow  and  arrow  can  obtain  more  game  by  hunting 
with  his  new  weapon  than  by  staying  at  home  and  selling  it  for 
one  deer.  Hence  he  declines  to  make  them  and  there  is  no 
supply.  Two  deer  are  offered,  but  he  declines  for  the  same 
reason,  and  still  there  is  no  supply, — although  the  price  has 
doubled  through  the  strength  of  the  demand.  Two  deer  and  a 
beaver  are  offered  ;  here  the  bow-  and-  arrow-maker  yields,  and 
the  supply  commences.  At  this  price  those  who  have  the  apti- 
tude for  making  bows  and  arrows  are  willing  to  stay  at  home 
and  make  them,  because  they  can  obtain  as  much,  or  more,  game 
in  exchange  for  their  weapons  than  by  hunting  for  themselves. 


WHEN  SUPPLY  BEGINS.  113 

It  will  thus  be  seen  that  bows  and  arrows  not  only  had  a  price 
long  before  there  was  any  supply,  but  it  was  only  when  the  price 
rose  to  the  economic,  or  remunerative,  point  that  the  supply 
commenced  and  the  ratio  between  demand  and  supply  had  any 
existence.  Manifestly,  the  first  fact  in  the  movement  of  these 
phenomena  was  the  demand  for  the  game.  When  the  bow  and 
arrow  was  known  to  be  capable  of  aiding  in  the  gratification  of 
this  demand  the  desire  for  venison  was  extended  to  the  bow  and 
arrow  also,  and  the  amount  that  was  offered  for  it  was  deter- 
mined entirely  by  the  strength  of  the  desire  ;  and  this  price, 
— when  it  became  large  enough  to  make  it  more  profitable  to 
manufacture  bows  and  arrows  than  to  hunt  for  a  living, — was 
the  sole  cause  of  the  weapons  being  supplied.  It  is  therefore 
obvious  that  the  price  of  the  bows  and  arrows  was  not  created 
by  the  ratio  between  the  demand  and  the  supply. 

This  principle  obtains  with  the  same  force  in  the  most  com- 
plex business  transactions  of  modern  society  as  in  the  most 
primitive  stages,  although  its  origin  and  operations  are  not  so 
easily  observed.  It  is  true  that  an  article  sometimes  is  produced 
before  there  is  any  demand  for  it,  i.e.,  before  its  utility  is  gen- 
erally known — but  this  does  not  alter  the  case.  When  a  com- 
modity is  supplied  in  advance  of  the  demand  for  it,  the  supply 
is  impelled  by  the  same  cause  as  when  it  is  produced  in  response 
to  a  known  demand,  the  only  difference  being  in  the  certainty  of 
the  result.  In  the  former  case  the  supply  of  the  article  is  based 
upon  confidence  in  its  capacity  to  serve  some  purpose  to  the 
community  sufficiently  well  to  induce  willingness  to  give  a 
remunerating  price  for  it.  If  the  utility  of  the  article  and  the 
wants  of  the  people  have  been  correctly  estimated,  a  remunerative 
price-making  demand  for  it  will  ensue  as  soon  as  its  merits  are 
known.  But,  on  the  other  hand,  if  the  relative  degree  of  these 
influences  has  been  miscalculated,  no  effectual  demand  for  it  will 
arise,  in  which  case  the  production  will  prove  to  be  an  entire 
mistake,  resulting  in  loss  to  those  who  undertake  it.  This  has 
been  painfully  illustrated  in  thousands  of  instances, — as  the 
almost  interminable  list  of  unsuccessful  patents  clearly  shows. 
Hence,  whether  the  demand  and  supply  commence  to  operate 
in  their  natural  order,  from  the  known  utility  of  the  article, — 
as  in  the  case  of  the  bow  and  arrow, — or  in  anticipation  of  it, — 


,114  ORDER  OF  PRICE  PHENOMENA. 

as  in  the  case  of  the  patents, — makes  no  real  difference.     In 
both  cases  the  result  is  governed  by  the  same  law. 

Evidently,  the  more  closely  we  examine  the  economic  relation 
of  demand  and  supply,  the  clearer  it  becomes  that  demand  is 
the  active  force,  to  which  supply  is  but  the  ultimate  response. 
And  that,  to  the  extent  supply  exists  without  demand,  is  it 
devoid  of  social  utility  and  economic  force.  In  other  words; 
products  become  waste  or  wealth  in  proportion  as  they  pre- 
cede, or  are  preceded  by,  wants.  Therefore,  instead  of  economic 
prices  being  dependent  upon  the  ratio  between  the  demand  and 
the  supply,  they  have  no  necessary  relation  to  it.  The  order  of 
the  economic  relation  of  these  phenomena  is  that  supply  imme- 
diately depends  upon  the  price,  and  the  price  is  created  by  the  demand, 
and  the  demand  depends  entirely  upon  the  habitual  wants  or  social 
life  and  character  of  the  people. 


CHAPTER   IV. 

THE   LAW   OF   ECONOMIC   PRICES. 
SECTION  I. —  The  Scope  and  Importance  of  the  Subject. 

THE  law  of  prices  may  be  said  to  occupy  the  keystone  position 
in  the  arch  of  economic  science.  It  involves  the  principle  upon 
which  the  equity  of  all  human  relations  finally  rests.  All  the 
advantages  of  social  intercourse,  however  simple  or  complex, 
ultimately  depend  upon  the  exchange  of  equivalents.  This  is  as 
true  in  the  realm  of  the  affections,  ideas,  ethics,  and  politics,  as 
it  is  in  economics.  If  all  could  secure  the  equivalent  for  what 
they  give,  they  would  receive  an  absolutely  equitable  reward  for 
what  they  do,  and  injustice  would  be  impossible.  All  industrial 
political,  moral,  or  religious  endeavor  to  improve  society  being 
efforts  to  promote  justice,  it  must  rest  finally  upon  the  principle 
involved  in  the  law  of  economic  prices,  namely,  quid  pro  quo. 
Nothing  is  truly  economic  which  is  not  entirely  equitable,  and 
equity  is  the  highest  form  of  ethics. 

The  phenomena  that  are  subject  to  the  law  of  prices  may  be 
grouped  under  two  general  heads,  as  WEALTH  and  SERVICE. 
There  can  be  no  economic  change  in  society  except  through  the 
alteration  of  the  ratio  in  which  these  exchange  for  each  other. 
The  prices  of  wealth  and  service  move  inversely  to  each  other, 
promoting  social  welfare  only  as  the  ratio  in  which  wealth  will 
exchange  for  service  increases.  Since  all  economic  exchanges 
are  of  the  same  general  character  and  belong  to  the  same  class  of 
phenomena,  they  must  be  subject  to  the  same  general  law.  Conse- 
quently, to  explain  the  law  of  prices  is  to  furnish  a  clue  to  the 
law  of  wages,  rent,  interest,  and  profit,  and  really  to  lay  the  founda- 
tion for  a  scientific  solution  of  the  whole  problem  of  Economic 
Distribution. 

"5 


1 1 6  ECONOMIC  LA  W. 

At  the  outset  we  must  remember  that  we  are  not  seeking  the 
explanation  of  some  special  cases  of  exchange,  but  we  are  seek- 
ing the  law  to  which  all  exchange  may  be  referred,  and  through 
which  all  prices  may  be  adequately  accounted  for. 

The  true  theory  of  economic  prices  must  be  capable  of  explain- 
ing why  the  price  of  agricultural  products  tends  to  conform  to 
the  ratio  of  demand  and  supply,  while  that  of  manufactured 
products  does  not  ;  and  why  the  price  of  labor  rises  when  the 
supply  is  in  excess  of  the  demand  ;  why  the  price  of  certain 
agricultural  and  dairy  products  constantly  tends  to  rise,  while 
that  of  manufactured  products  tends  to  fall ;  and  why  this  dis- 
parity in  the  permanent  tendency  of  prices  in  these  classes  of 
commodities  is  the  greatest  in  the  most  highly  civilized  countries. 
In  short,  it  must  be  capable  of  explaining  the  variation  in  the 
economic  prices  of  all  kinds  of  commodities  and  service  under 
all  conditions. 

SECTION  II. —  The  Meaning  of  Economic  Law. 

It  is  important,  in  this  connection,  clearly  to  define  in  what 
sense  the  word  law  is  to  be  understood  in  Economic  Science. 
We  frequently  hear  the  expressions  natural  law  and  artificial  law 
— as  if  the  phenomena  created  by  art  were  unnatural, — the  impli- 
cation being  that  nothing  is  natural  except  what  results  from  the 
unaided  forces  of  nature.  This  erroneous  notion  is  the  basis  of 
much  of  the  unscientific  conduct  of  the  laissez-faire  doctrinaires. 
Upon  the  assumption  that  natural  law  means  the  uncontrolled 
operation  of  cosmic  forces,  they  conclude  that  "  natural  law  " 
can  only  prevail  in  commerce  and  industry  under  a  laissez-faire 
regime.  It  is  difficult  to  conceive  a  notion  more  unscientific.  All 
laws  are  natural.  Unnatural  law  in  the  scientific  sense  is  a 
contradiction  in  terms. 

Law  in  science  simply  means  the  necessary  order  in  which 
phenomena  succeed  each  other  as  cause  and  effect.  A  law  is  not 
more  or  less  natural  because  its  operation  results  from  cosmic  or 
from  human  influences,  nor  because  its  effects  are  good  or  bad. 
Almost  every  thing  that  will  preserve  life  under  certain  con- 
ditions, will  just  as  surely  destroy  it  under  others,  and  the  law  is 
equally  natural  in  both  cases.  In  seeking  a  scientific  law,  there- 


CHARACTER   OF  ECONOMIC  SCIENCE. 

fore,  it  is  not  a  question  of  distinguishing  the  natural  law  from 
the  artificial  law,  but  solely  one  of  ascertaining  the  necessary 
order  in  which  phenomena  lead  to  given  results,  and  the  con- 
ditions which  favor  or  retard  that  order  of  movement.  Under- 
standing this,  we  shall  be  in  a  position  to  act  scientifically 
regarding  the  influences  that  aid  the  recurrence  of  desirable,  and 
prevent  that  of  undesirable,  phenomena. 

Since  the  advancement  of  social  welfare  primarily  depends 
upon  cheapening  wealth,  it  is  one  of  the  chief  functions  of 
economic  science  to  explain  how  a  smaller  amount  of  labor  can 
become  the  equivalent  of  a  larger  amount  of  wealth.  In  study- 
ing the  law  of  prices,  therefore,  our  chief  concern  is  to  ascertain 
the  order  of  economic  phenomena  which  makes  given  quantities 
of  wealth  and  service  the  economic  equivalents  of  each  other. 
When  this  law  is  clearly  established  we  shall  have  a  scientific  basis 
for  industrial  development,  and  instead  of  having  to  take  refuge 
behind  the  doctrine  of  laissez-faire  to  protect  us  from  the  irra- 
tional hit-or-miss  policy  which  has  characterized  so  much  of 
modern  statesmanship,  we  shall  be  able  to  increase  the  influences 
which  promote,  and  diminish  those  which  retard,  industrial  and 
social  progress,  with  the  same  scientific  accuracy  that  we  can  now 
travel  by  steam  and  communicate  by  electricity. 

This  does  not  mean  that  economic  science  is  of  the  same  exact 
character  as  mathematics  or  chemistry.  The  phenomena  with 
which  it  deals  do  not  admit  of  the  same  exact  statement,  for  two 
reasons  :  first,  because  the  change  that  is  constantly  taking  place 
in  social  phenomena  is  so  universal  and  persistent  that  in  no  two 
succeeding  instances  are  the  phenomena  exactly  the  same  ;  and 
second,  because  much  of  the  change  in  this  class  of  phenomena 
is  due  to  human  desire  and  human  will,  neither  of  which  admits  of 
exact  quantitative  statement.  Although  economic  phenomena 
are  not  susceptible  of  being  reduced  to  exact  mathematical  state- 
ment, they  are  susceptible  of  positive  explanation.  Economic 
science  deals  with  the  social  relations  of  the  human  race,  and  the 
law  of  their  continuous  development.  Since  social  progress  is  an 
almost  imperceptible  evolution,  it  is  more  necessary  that  knowl- 
edge regarding  the  tendency  of  phenomena  should  be  exact  than 
that  the  precise  quantitative  relations  should  be  known  at  any 
given  time. 


Il8  THE  LAW  OF   TENDENCIES. 

In  economics,  then,  the  term  law  must  be  understood  as 
expressing  the  order  in  which  phenomena  necessarily  tend  to 
move  in  any  given  direction.  Hence,  in  studying  the  law  of 
economic  prices,  we  must  endeavor  to  ascertain,  first  of  all,  the 
necessary  tendency  of  economic  prices,  and  how  that  tendency  is 
determined.  When  the  primary  law  of  economic  tendency  is 
clearly  established,  the  action  of  the  secondary  influences,  which 
tend  to  modify  its  operation,  can  be  ascertained  with  comparative 
ease  and  accuracy.  We  shall  then  be  in  a  position  to  distinguish 
the  economic  tendency  from  its  uneconomic  perturbations.  The 
law  of  the  first  will  of  necessity  furnish  the  key  to  the  second, 
because  to  know  the  one  is,  by  implication,  to  know  the  other. 

SECTION  III. —  The  Primary  Law  of  Prices. 

It  is  a  characteristic  of  all  phenomena  with  which  science  has 
yet  been  able  to  deal,  that  their  actual  movement  is  governed  by 
a  composite  law,  resulting  from  a  variety  of  forces  which  act  and 
react  upon  and  modify  each  other.  This  is  especially  true  of 
economic  and  social  phenomena.  These  forces  may  be  divided 
into  two  classes  :  as  primary  and  secondary  forces.  The  former 
determines  the  constant  tendency  of  the  main  current ;  the  latter 
affects  the  rate  of  movement,  and  hences  modifies  the  quantita- 
tive result  at  any  given  time.  Thus,  for  example,  in  gravitation 
the  primary  forces  attract  bodies  towards  each  other  directly  in 
proportion  to  the  quantity  of  matter  which  they  contain  ;  but  this 
movement  is  modified  by  the  secondary  forces,  which  diminish 
the  power  of  attraction  as  the  distance  increases.  Consequently, 
until  the  relative  influence  of  these  two  classes  of  forces  was 
accurately  ascertained,  the  actual  movement  and  relative  position 
of  bodies  under  given  conditions  could  not  be  correctly  predi- 
cated. Hence,  in  stating  the  actual  law  of  gravitation,  we  express 
the  action  of  both  these  forces  and  say  :  "All  bodies  are  attracted 
to  each  other  directly  in  proportion  to  their  size  and  inversely  to 
the  square  of  their  distance."  So  it  is  in  the  sphere  of  economic 
prices.  While  the  order  and  direction  of  economic  movement  is 
determined  by  the  direct  action  of  the  primary  forces,  the  degree 
is  modified  by  the  secondary  forces,  and  the  result  at  any  given 
time  cannot  be  correctly  predicated  unless  the  relative  power  of 


ECONOMIC  MOVEMENT  OF  PRICE.  119 

the  secondary  to  the  primary  forces  is  accurately  known.  There- 
fore, correctly  to  understand  the  scientific  law  of  economic  prices, 
we  must  first  ascertain  the  primary  law  of  price-determining  phe- 
nomena, and  then  consider  the  modifying  influence  of  secondary 
forces  and  the  degree  to  which  they  operate  in  determining  the 
actual  ratio  of  exchange. 

In  order  clearly  to  observe  the  action  of  the  primary  forces 
upon  the  tendency  of  prices  we  must  eliminate  all  secondary  in- 
fluences from  the  problem.  To  do  this  we  must  assume  that  all 
who  participate  in  a  transaction  are  adequately  informed  as  to  the 
quantity,  quality,  and  other  conditions  affecting  the  commodity 
for  which  they  are  negotiating ;  and  also  that  they  are  entirely 
free  to  act  according  to  their  best  interest  and  judgment.  More- 
over, to  be  sure  that  the  movement  is  entirely  economic,  we  must 
assume  commodities  whose  production  is  wholly  determined  by 
economic  forces,  such,  for  instance,  as  manufactured  products, 
leaving  agricultural  products,  whose  quantity  and  quality  are 
largely  influenced  by  gratuitous  forces-,  to  be  considered  later. 
How,  then,  upon  the  principle  of  self-interest  and  economic 
equity,  is  the  price  of  a  commodity  determined  ? 

Since  the  action  of  both  producer  and  consumer  is  governed  by 
the  motive  to  obtain  the  greatest  result  for  the  least  effort,  it  is 
quite  clear  that  no  exchange  will  take  place  unless  each  can 
obtain  more  gratification  from  what  he  receives  than  he  could 
have  procured  from  what  he  gives.  Let  us  examine  the  economic 
movement  under  the  simplest  known  conditions — namely,  where 
man  produces  for  his  own  personal  consumption.  The  economic 
movement  is  as  complete  here  as  in  transactions  where  thousands 
of  miles  and  millions  of  people  intervene  between  the  producer 
and  the  consumer,  the  only  difference  being  in  its  relative  sim- 
plicity or  complexity.  If  our  isolated  producer  wants  cotton 
cloth,  the  first  question  that  arises  is  how  to  get  it.  That  being 
settled,  the  next  point  in  the  problem  is,  will  the  gratification  de- 
rived from  the  product  be  sufficient  to  compensate  for  the  effort 
necessary  to  obtain  it  ?  If  it  will,  the  cloth  will  be  made  ;  if  not, 
the  enterprise  will  be  abandoned. 

In  modern  society  where,  through  the  division  and  specializa- 
tion of  labor,  all  produce  for  others  and  receive  what  they  actually 
consume  through  exchange,  the  principle  is  the  same,  though  the 


I2O  BASIS  OF  ECONOMIC  EQUALITY. 

process  is  more  complex.  When  making  cotton  cloth  for  a  stran- 
ger, it  is  essentially  the  same  question  which  arises  as  when  mak- 
ing it  for  one's  self,  namely  :  can  the  producer,  in  exchange  for 
the  cloth,  obtain  as  much  utility  as  it  cost  in  painful  effort,  or  as 
he  could  otherwise  have  obtained  by  the  expenditure  of  the 
same  amount  of  energy  ?  If  not,  the  cloth  will  not  be  made.  Ob- 
viously, therefore,  the  first  condition  necessary  to  secure  the  pro- 
duction of  cotton  cloth  is  that  the  consumer  shall  be  willing  to  give 
an  economic  equivalent  for  it.  Economic  equivalents,  as  already 
explained,  are  not  necessarily  equivalents  of  utility.  The  utility 
of  an  article  may  differ  with  different  persons  according  to  tem- 
perament, taste,  intensity  of  desire,  and  other  conditions  peculiar 
to  the  individual,  but  that  does  not  affect  it  as  an  economic  qual- 
ity. The  fact  that  an  eastern  manufacturer  can  obtain  twice  as 
much  gratification  from  a  bushel  of  wheat  as  from  ten  yards  of 
cotton  cloth,  while  a  western  farmer  could  only  get  one  tenth 
more  gratification  from  the  cloth  than  from  the  wheat,  does  not 
prevent  the  wheat  and  .the  cloth  from  being  economic  equiva- 
lents. Of  course  the  farmer  will  not  give  the  wheat  for  the  cloth 
unless  it  has  more  utility  for  him  than  has  the  wheat,  but  the  fact 
that  it  would  possess  twenty  times  as  much  utility  for  the  manu- 
facturer would  not  affect  the  economic  relation  of  the  producers. 
The  economic  equality  of  commodities  does  not  depend  upon 
the  equality  of  the  utility,  but  upon  the  equality  in  the  amount 
of  reluctant  productive  energy  expended  in  procuring  them — in 
other  words,  the  necessary  cost  of  production.  Clearly,  then,  the 
minimum  price  at  which  the  cloth  can  be  obtained  is  determined 
by  the  producer,  and  it  is  fixed  at  a  point  equal  to  the  cost  of  its 
production.  For  the  .same  reason  that  the  minimum  price  is 
determined  by  the  producer,  the  maximum  price  will  be  deter- 
mined by  the  consumer.  What,  then,  under  these  conditions, 
will  the  maximum  price  be  ?  Since  the  producer  will  not  permit 
the  consumer  to  obtain  the  cloth  for  less  than  it  cost,  will  the 
consumer  permit  the  producer  to  obtain  more  for  it  than  it  cost  ? 
It  must  be  remembered  that  the  motives  which  influence  the 
producer  to  refuse  to  supply  the  cloth  for  less  than  it  cost  oper- 
ate with  equal  force  to  make  the  consumer  decline  to  give  more 
than  it  cost.  Unless  there  is  some  ethical  or  economic  reason 
why  the  consumer  should  give  more  for  the  cloth  than  the  equiva- 


COST  THE  BASIS  OF  PRICE.  121 

lent  of  its  cost,  he  certainly  will  not  do  so.  There  is  manifestly 
no  good  reason  for  compelling  the  consumer  to  give  more  for  an 
article  than  its  equivalent,  since  to  do  so  would  be  to  receive  less 
— an  obvious  violation  of  the  principles  of  equity.  The  ethics  of 
economic  exchange  are  :  quid  pro  quo, — price,  the  exact  equiva- 
lent of  the  cost. 

Nor  is  there  any  economic  reason  why  this  should  be  other- 
wise. If  the  consumer  demands  the  cloth  for  less  than  it  cost — 
i.e.,  for  a  smaller  amount  of  wheat,  shoes,  or  other  products, 
than  its  economic  equivalent,  the  manufacturer  has  an  effective 
remedy  at  hand,  namely  :  to  refuse  to  make  the  cloth  and  devote 
his  energies  to  producing  the  wheat  or  shoes  for  himself.  On  the 
other  hand,  the  consumer  of  cotton  cloth,  who  is  a  producer  of 
other  things,  has  an  equally  effective  means  of  protecting  himself 
against  the  encroachments  of  the  producer.  If  the  manufacturer 
demands  more  wheat  or  shoes  for  his  cloth  than  its  economic 
equivalent,  the  consumer  of  cloth  can,  and  unquestionably  will, 
refuse  to  furnish  wheat  or  shoes  and  devote  his  energies  to 
making  cloth.  And  all  the  power  which  the  producer  pos- 
sesses for  preventing  the  price  of  cloth  from  falling  below  the 
cost  of  its  production,  the  consumer  has  in  an  equal  degree  to 
prevent  it  from  rising  above  the  cost  of  production.  Therefore, 
upon  the  principle  that  two  equal  opposing  forces  neutralize 
each  other,  the  consumer  cannot  force  the  price  below,  and  the 
producer  cannot  force  it  above,  the  cost ;  consequently  this  is  the 
only  point  at  which  the  exchange  can  take  place.  In  a  word,  it 
is  the  only  point  at  which  all  exchanges  become  economic  and 
mutually  advantageous,  and  at  which  everybody  obtains  an 
increase  of  utility  by  giving  an  economic  equivalent. 

Moreover,  if  there  were  any  economic  force  by  which  the  pro- 
ducer could  exact  more  than  he  gives,  it  would  be  neutralized  by 
the  consumer  in  his  capacity  as  a  producer,  and  again  reduce  the 
relation  of  the  producer  and  the  consumer  to  a  purely  economic 
cost  basis.  It  will  thus  be  seen'  that,  in  the  absence  of  secondary 
and  modifying  influences  (hereafter  to  be  considered),  the  primary 
law  of  economic  prices  is,  that  commodities  exchange  in  the  ratio 
of  the  cost  of  their  production. 

It  may  be  well  to  pause  here  a  moment  to  explain  precisely 
what  is  meant  by  the  expression,  "  cost  of  production."  The 


122  COST  OF  PRODUCTION  DEFINED. 

cost  of  a  commodity  is  simply  what  its  owner  gave  for  it,  or  must 
give  to  replace  it  The  aggregate  cost  of  producing  cotton  cloth 
may  be  divided  into  three  items  :  cost  of  service,  cost  of  raw  ma- 
terial, and  cost  of  tools.  Under  existing  methods  all  whose 
services  are  found  necessary  to  the  manufacture  of  cotton  cloth 
are  included  in  the  cost  of  service,  or  labor.  All  classes  of  labor 
must,  for  the  reasons  already  stated,  receive  as  much  from  the 
enterprise  as  they  put  into  it,  or  they  will  devote  their  energies  in 
some  other  direction.  What  the  laborers  put  in  is  their  whole 
working  force  ;  the  cost  of  their  working  force  to  them  is  their 
living — whatever  that  may  be, — and  that  they  must  have  in  order 
to  be  able  to  continue  to  supply  their  productive  energy.  This 
cost  of  service  will  vary  according  to  what  enters  into  the  living. 
In  one  case  it  may  be  a  dollar  a  day  ;  in  another,  ten  or  twenty 
dollars  a  day.  What  determines  that  difference  will  be  con- 
sidered under  the  head  of  wages.  It  is  sufficient  for  our  present 
purpose  that  each  class  of  service  must  receive  from  the  product 
the  equivalent  of  its  cost  ;  none  can  obtain  more,  because  none 
will  accept  less. 

The  same  is  true  of  raw  material.  If  we  follow  the.  history  of 
its  cost  we  shall  find  that  it  is  again  resolved  into  the  same  three 
classes  of  cost,  and,  in  the  last  analysis,  they  will  all  prove  to  be 
the  cost  of  labor.  We  will  assume  that  all  previous  demands  in 
producing  the  raw  material  have  been  settled,  and  therefore  its 
cost  is  represented  in  what  the  manufacturer  has  to  give  for  it. 
For  the  same  reason  that  the  laborer  must  receive  the  equivalent 
of  the  cost  of  his  labor,  the  manufacturer  must  obtain  from  the 
product  the  equivalent  of  the  cost  of  the  raw  material.  And  he 
cannot  obtain  more  than  the  cost,  because  to  do  so  would  be  to 
take  something  for  nothing,  and  to  this  nobody  will  consent. 
The  same  is  true  of  tools  and  implements.  The  wear  and  tear 
of  tools  and  machinery  must  be  replaced  from  what  is  received 
for  the  product,  or  they  would  soon  disappear.  Less  than  the 
equivalent  of  this  the  owner  will  not  accept,  and  more  the  con- 
sumer will  not  give.  Now,  what  is  true  of  service,  raw  material, 
and  tools  separately  is  equally  true  of  them  collectively.  For  the 
same  reason  that  each  of  these  must  receive  the  equivalent  of 
what  is  expended,  the  producer  or  owner  of  the  finished  product 
will  not  accept  less,  and  cannot  obtain  more  than  the  equivalent 


THE  PRICE-FIXING  INCREMENT.  12$ 

of  its  aggregate  cost.  In  other  words,  the  cost  of  manufacturing 
cotton  cloth  is  increased  by  exactly  the  amount  that  each  of  these 
three  factors  impart  to  it,  and  the  ratio  in  which  it  will  exchange 
for  other  commodities  and  service — /'.  e.,  its  value — must,  and  will 
be,  exactly  equal  to  what  will  replace  them  or  their  equivalents. 
The  question  of  profits  is  naturally  suggested  here,  but  in  order 
to  keep  the  primary  movement  of  price-regulating  phenomena 
unobscured,  the  consideration  of  that  subject  will  be  deferred  to 
a  subsequent  chapter.1  At  the  price-determining  point  of  the 
economic  relations  which  we  are  now  considering  there  is  no 
profit  and  can  be  none.  It  may  be  remarked  in  passing,  however, 
that  it  is  a  great  mistake  to  confound  the  manufacturer  or 
entrepreneur's  income  with  profits.  Profit,  as  we  shall  hereafter 
see,  is  the  net  surplus  which  is  left  after  all  the  factors  have  re- 
ceived a  full  economic  equivalent  for  their  contribution  to  the 
product.  Unless  such  an  economic  margin  can  be  found,  the 
socialist's  claim  that  profit  is  robbery  must  be  correct.  That 
such  a  surplus  is  possible  and  does  exist  we  shall  subsequently 
see ;  and  exactly  how  it  takes  place,  on  the  basis  of  the  economic 
equivalents  and  absolute  equity,  the  law  we  are  considering  will 
adequately  explain,  if  our  hypothesis  is  correct.  For  the  present 
we  are  concerned  only  with  the  purely  price-making  point  of 
economic  conditions. 

Since  no  factor  will  contribute  something  for  nothing,  the 
manufacturer  must,  and  will,  receive  an  equivalent  for  his  contri- 
bution to  the  product.  His  reward  takes  the  form  of  a  salary 
for  superintendence, — which  is  a  necessary  part  of  the  cost, 
just  as  much  as  that  of  the  clerk,  or  the  wages  of  the  spinner  and 
weaver. 

But  what,  it  may  be  asked,  under  these  conditions  is  the  return 
for  the  use  of  pure  capital.  Capital  receives  exactly  the  same 
kind  of  reward  as  every  other  factor,  namely,  the  equivalent  of 
its  cost.  It  gets  back  all  that  it  gives,  or  an  ^equivalent  for  it.  If 
any  of  the  factors  are  governed  by  law,  they  must  all  be  subject 
to  the  same  law.  If  one  can  obtain  more  than  it  gives,  they  all 
can.  'This  principle  becomes  quite  clear  if  we  once  recognize 
the  fact  that  gratuitous  forces  of  nature  charge  nothing  for  their 
contribution  of  productive  energy.  For  the  same  reason  that  air 
1  Part  III.,  chapter  iv. 


124  EQUITY  OF  ECONOMIC  LAW. 

and  sunlight  have  no  price  because  they  cost  nothing,  do  pro- 
ducts which  possess  utility  have  a  price  only  because  they  cost 
something,  and  the  price  is  commensurate  to  the  cost.  Every 
improved  machine  which  diminishes  the  cost  of  production,  to 
that  extent  approximates  gratuitous  natural  forces,  and  nothing 
can  be  demanded  for  that  part  of  the  product. 

If  the  improvements  should  reduce  the  cost  of  making  cotton 
cloth  by  a  cent  a  yard  (since  1820  it  has  reduced  the  cost  more 
than  ten  cents  a  yard)  such  reduction  would  be  exactly  as  if  one 
quarter  of  the  cloth  had  been  supplied  gratuitously  by  nature. 
Capital,  whose  sole  function  is  to  aid  and  save  labor,  really  sus- 
tains the  same  economic  relation  to  production  that  natural 
forces  do.  Indeed,  it  only  succeeds  in  economizing  labor  when 
it  substitutes  the  use  of  natural  forces  for  human  energy.  All 
the  wealth  that  is  thus  produced  is  free,  and  no  price  can  be 
charged  for  it.  The  difference  in  the  cost  resulting  from  the 
improvement,  through  the  automatic  operation  of  economic  law 
passes  to  the  consumer  by  a  reduction  of  the  price.  This  is  why 
improved  methods  of  production  cheapen  wealth. 

Under  conditions  of  uniform  cost  of  production,  therefore, 
with  free  economic  movement  and  adequate  knowledge  of  the 
phenomena,  the  price  and  cost  of  a  commodity  would  be  identi- 
cal. In  other  words,  the  primary  law  of  prices,  in  the  absence 
of  secondary  modifying  influences,  is,  that  commodities  and  ser- 
vices exchange  in  the  quantitative  ratio  of  exact  economic 
equivalents  ;  and,  consequently,  unimpeded  economic  law  estab- 
lishes exact  industrial  equity,  or  absolute  justice. 

It  will  be  observed  that  thus  far  we  have  considered  the  move- 
ment of  prices  only  under  purely  hypothetical  conditions,  namely, 
where  the  product  is  made  at  a  uniform  cost.  As  a  matter  of 
fact,  there  is  probably  no  commodity,  in  the  production  of  which 
capital  is  employed,  which  is  not  produced  at  a  great  variety  of 
costs  ;  hence  no  hypothesis  can  adequately  explain  the  law  of 
prices  which  is  not  applicable  to  conditions  of  varying  costs  of 
production.  We  will  therefore  consider  the  subject  in  its  most 
complex  aspect,  where  the  cost  of  making  the  same  article  varies. 
In  order  to  do  this,  we  will  suppose  that  there  are  six  (there  may 
be  six  hundred)  manufacturers,  or  groups  of  manufacturers,  who 
produce  the  same  grade  of  cotton  cloth  and  sell  it  in  the  same 


HIGHEST  COST  EQUALS  LOWEST  PRICE.  12$ 

market.  And  let  us  further  suppose  (what  actually  exists  on 
every  hand)  that,  from  various  causes,  such  as  different  degrees 
of  skill,  quantity  of  capital,  quality  of  machinery,  size  of  plant, 
location,  etc.,  the  actual  cost  of  making  the  cloth  and  delivering 
it  to  the  market  is  slightly  different  in  each  case.  For  example, 
suppose  that  A,  who  for  some  reason  produces  under  the  great- 
est disadvantage,  can  barely  make  print  cloth  of  64  x  64  quality 
at  4  cents  a  yard  ;  that  B,  through  some  economic  advantage 
derived  from  larger  capital,  better  location,  superior  manage- 
ment, etc.,  can  produce  the  same  cloth  at  3^  a  yard  ;  C,  at  3f ; 
D,  at  3!  ;  E,  at  3^  ;  and  F,  at  3  cents  a  yard. 

Now,  according  to  the  law  just  stated,  what  will  be  the  price 
of  the  cloth  under  these  conditions  ?  In  the  case  where  the  cost 
of  production  was  uniform  we  saw  that  the  price  was  equal  to  the 
cost,  but  here  we  have  six  lots  of  the  same  commodity  each 
produced  at  a  different  cost.  For  reasons  already  stated,  the  self- 
interest  of  both  consumers  and  producers  would  make  it  impos- 
sible for  the  cloth  to  be  sold  at  six  different  prices  in  the  same 
market.  The  lowest  price  at  which  any  producer  will  sell  will  be 
the  highest  at  which  consumers  will  buy  ;  and  conversely,  the 
highest  price  the  consumers  will  give  will  be  the  lowest  any  pro- 
ducer will  take.  If  the  minimum  price  is  fixed  by  the  producer 
at  cost,  and  the  producer's  minimum  is  the  consumer's  maximum, 
the  price  must  still  be  fixed  at  the  cost  ;  and  if,  as  is  generally 
admitted,  there  cannot  be  two  prices  in  the  same  market,  then 
the  price  of  the  whole  must  necessarily  be  determined  by  the 
cost  of  some  one  of  the  six  classes  of  producers.  Which  of  them 
occupies  that  price-making  position  ? 

While  the  producer  will  not  sell  below  cost,  he  will  sell  at  any 
price  from  that  point  upwards,  and  he  will  only  consent  to  sell  at 
cost  when  the  consumer  refuses  to  buy  at  a  price  above  it. 
Through  the  efforts  of  consumers  to  buy  at  the  minimum,  and 
their  refusal  to  buy  above  the  cost,  the  price  will  be  forced  down 
until  it  reaches  the  cost.  Since  the  cost  of  A's  cloth  is  the  high- 
est it  will,  of  course,  be  the  first  to  be  reached.  Therefore  the 
downward  movement  of  the  price  must  necessarily  be  arrested  at 
the  cost  of  A's  cloth,  if  his  product  is  to  be  sold.  Since  to  make 
his  portion  of  the  product  costs  4  cents  a  yard,  so  far  as  he  is 
concerned,  that  is  the  equivalent  of  the  cloth,  and  must  be  the 


126 


ORIGIN   OF  PROFITS. 


minimum  price.  On  the  other  hand,  the  consumer  will  not  give 
more  than  4  cents  a  yard,  for  the  obvious  reason  that  B,  who  can 
make  it  for  3^  cents  a  yard,  though  anxious  to  get  more,  would 
willingly  take  4  cents  and  make  \  of  a  cent  profit,  rather  than 
not  sell.  So  long  as  the  consumer  can  obtain  it  from  B  for  4 
cents  a  yard,  he  certainly  will  not  give  more  than  that  for  it  to  A. 
Therefore,  4  cents  a  yard  is  both  the  lowest  A  can  afford  to  take, 
and  the  highest  he  can  possibly  get  for  his  cloth. 

It  will  be  observed  that  A  is  here  in  exactly  the  same  position 
that  the  producer  was  in  the  former  case,  where  all  the  product 
was  made  at  a  uniform  cost,  namely  :  that  he  can  neither  accept 
less  nor  obtain  more  than  the  equivalent  of  the  cost.  Manifestly 
what  A  must  have  for  his  cloth  all  the  others  can  have  for  theirs, 
and  4  cents  a  yard  will  be  the  selling  price  of  the  whole  product 
in  that  market.  Under  these  conditions,  then,  A  will  sell  exactly 
at  cost.  He  will  give  and  receive  exactly  quid  pro  quo  and  have 
no  surplus  or  profit  whatever.  All  the  other  five  being  able  to 
sell  their  product  at  the  same  price  as  A,  while  producing  it  at 
less  cost,  can  give  the  same  equivalent  for  what  they  get  and 
still  have  a  surplus  equal  to  the  amount  by  which  their  cost  of 
production  is  less  than  his.  Here  profit  emerges,  and  the  relative 
position  of  the  various  groups  of  producers  will  be  as  follows  : 


Manufacturers. 

Cost  per  yard. 

Price  per  yard. 

Surplus  profit 
per  yard. 

Total  profit 
per  1,000  yards. 

A 

4       cts. 

4  cts. 

—  cts. 

— 

B 

3f 

4 

} 

$2.00 

C 

3f 

4 

2 
~5 

4.00 

D 

3f 

4 

1 

6.00 

E 

a 

4 

£ 

8.00 

F 

3 

4 

I 

10.00 

It  will  be  observed  that  two  movements  are  here  indicated  : 
one  of  price,  the  other  of  cost.  Under  conditions  where  different 
portions  of  the  general  supply  are  produced  at  a  different  cost  per 
unit  (as  in  all  civilized  communities),  one  of  two  things  must 
occur  :  either  the  selling  price  must  vary  with  the  variation  of 
cost,  or  a  surplus  equal  to  the  difference  must  arise.  Since  the 
self-interest  of  both  consumers  and  producers  operates  to  make 


EQUITABLE  BASIS  OF  PROFITS.  12? 

prices  tend  to  a  uniformity  in  the  same  market,  a  surplus  equal 
to  the  difference  in  the  cost  is  inevitable.  Nor  is  there  any 
violation  of  ethics  in  either  case.  The  uniformity  of  prices  is 
strictly  equitable,  because  each  producer  gives  to  the  consumer 
the  full  equivalent  of  what  he  receives.  The  only  reason  that  the 
producer  of  other  commodities  will  give  4  cents,  or  its  equiva- 
lent, to  A  for  his  cloth  is,  because  they  could  not  produce  it  for 
less  if  they  devoted  their  energies  and  capital  to  the  business. 
Therefore  a  yard  of  cloth  to  them  is  the  exact  equivalent  of  4 
cents.  If,  then,  a  yard  of  A's  cloth  is  an  equivalent  for  4  cents, 
that  of  B,  and  all  the  others,  must  be  equally  so,  because  it  is 
just  like  it. 

Manifestly  B,  C,  D,  E,  and  F  give  just  as  complete  an  equiva- 
lent for  what  they  get  as  does  A.  Hence  the  surplus  is  not 
obtained  at  the  expense  of  equity.  They  pay  the  same  wages 
and  fulfil  all  the  other  economic  requirements  just  as  completely 
as  does  A,  or  as  do  the  shoemakers  or  farmers  with  whom  they 
trade.  Their  profits  are  due  entirely  "to  influences  peculiar 
to  them,  and  come  from  nature  through  them,  and  not  from  the 
consumer  or  laborer  through  injustice.  Just  as  soon  as  the 
peculiar  skill,  or  other  means,  by  which  B  makes  nature  give  him 
•£•  of  a  cent  a  yard  surplus,  becomes  accessible  to  the  shoe- 
maker or  farmer,  so  that  by  the  application  of  the  same  amount 
of  capital  and  labor  they  can  produce  the  cloth  at  3^,  it  will 
cease  to  be  an  equivalent  to  them  for  4  cents.  They  will  then 
refuse  to  give  4  cents  for  it, — for  the  same  reason  that  they  pre- 
viously refused  to  give  4^.  When  that  point  is  reached,  rather 
than  give  4  cents  to  A,  they  will  withdraw  their  capital  from 
shoemaking  or  farming  and  make  cotton  cloth,  and  A  will  have 
to  leave  the  business  unless  he  can  adopt  the  superior  methods 
employed  by  B,  because  he  will  have  ceased  to  give  an  equivalent 
for  4  cents.  The  price  of  the  cloth  will  then  be  3$  cents  a 
yard,  consequently  B  will  have  no  profit,  and  the  profit  of  all  the 
others  will  be  reduced  by  ^  of  a  cent  a  yard.  That  is  exactly 
the  way  the  price  of  cotton  cloth  has  been  reduced  from  30  to  4 
cents  during  the  present  century. 

What  is  true  of  cotton  cloth  and  other  manufactured  articles, 
the  production  of  which  is  entirely  subject  to  economic  and  social 
forces,  i.e.,  the  conscious  effort  of  man — is  equally  true  of  agri- 


128  PRIMARY  LAW  OF  PRICE   STATED, 

cultural  products — whose  production  is  largely  influenced  by  un- 
conscious cosmic  forces.  The  reason  the  economic,  price  of 
manufactured  products  does  not  necessarily  follow  supply  and 
demand  is  because,  in  their  case,  an  increase  or  diminution  of 
the  quantity  does  not  necessarily  affect  the  cost  of  production,  or, 
if  at  all,  but  slightly.  Conversely,  the  economic  price  of  agri- 
cultural products  does  follow  demand  and  supply  because,  in 
their  case,  an  increase  or  diminution  of  the  quantity — being 
chiefly  due  to  the  condition  of  the  seasons — implies  a  similar 
change  in  the  cost  per  unit. 

We  are  now  in  a  position  to  affirm  four  important  postulates 
from  which  the  primary  law  of  prices  can  be  definitely  stated. 
(i)  That  under  conditions  of  economic  freedom,  the  general 
price  for  any  given  article  in  the  same  market  tends  to  uniform- 
ity. (2)  That,  when  the  general  supply  of  a  commodity  in  any 
market  is  produced  at  a  uniform  expense  per  unit,  the  selling 
price  will  be  the  exact  equivalent  of  the  cost,  and  no  surplus  will 
exist.  (3)  That,  wherever  the  aggregate  supply  of  a  given  com- 
modity is  produced  at  different  rates  of  cost  per  unit,  the  price 
will  tend  to  a  uniformity  on  the  basis  of  the  cost  of  those  units 
which  are  produced  at  the  greatest  expense.  (4)  That  a  surplus, 
or  profit,  arises  inversely  to  the  cost  of  producing  the  different 
parts  of  the  necessary  supply,  increasing  as  the  cost  diminishes 
below  that  of  the  most  expensive,  or  price-making,  portion. 

SECTION  IV. — Influences  which  Modify  the  Operation  of  the 
Primary  Law  of  Prices, 

In  the  preceding  section  we  considered  the  movement  of  prices 
under  purely  economic  conditions,  namely  :  where  cosmic 
forces  did  not  influence  production,  except  as  consciously 
manipulated  by  man,  and  where  both  buyer  and  seller  had  the 
right  and  power  to  act  in  accordance  with  their  own  interests  and 
best  judgment,  with  adequate  knowledge  of  the  conditions  affect- 
ing the  commodity.  We  have  seen  that,  under  these  conditions, 
there  can  be  but  one  price  for  the  same  article  in  the  same  mar* 
ket, — which  price  will  be  the  exact  equivalent  of  the  cost  of 
producing  the  most  expensive  portion  of  the  necessary  supply  in 
that  market. 


PRICE  VARIATIONS.  129 

In  actual  experience,  however,  we  find  that  these  conditions 
do  not  literally  fit  the  facts.  We  know  that  there  frequently  is 
more  than  one  price  for  the  same  article  in  the  same  market,  and 
also  that  commodities  are  sometimes  sold  below  the  cost  of  pro- 
ducing the  dearest  portion,  and  also  below  that  of  any  portion  of 
the  supply.  Consequently,  if  the  primary  law  formulated  in  the 
previous  section  is  correct,  we  must  be  able  to  explain  in  accord- 
ance therewith  why  and  how  this  variation  takes  place,  and 
whether  it  is  an  uneconomic  perturbation  which  should  be  elimi- 
nated, or  an  economic  variation  which  should  be  accepted  and 
counted  upon.  Whenever  there  are  two  prices  for  the  same 
article  in  the  same  market,  it  is  manifest  that  either  some  consum- 
ers are  giving  more,  or  some  producers  are  selling  at  less,  than 
the  cost.  The  exchange,  under  these  conditions,  is  against  the 
interest  of  one  or  the  other  of  the  contracting  parties.  Another 
fact,  which  is  equally  self-evident,  is  that  neither  the  producer 
nor  the  consumer  will  do  that  which  is  inimical  to  his  interest  if 
he  knows  it  and  is  free  to  prevent  it.  Therefore,  whenever  there 
is  more  than  one  price  for  the  same  article  in  the  same  market,  it 
must  be  because  the  party  giving  more  or  taking  less  than  the 
cost  is  either  ignorant  of  the  facts  or  is  not  free  to  act  in  accord- 
ance with  his  knowledge  and  interest.  For  example,  to  recur  to 
our  previous  illustration,  suppose  the  supply  of  cotton  cloth,  the 
dearest  portion  of  which  cost  4  cents  a  yard,  is  sold  by  one 
producer  at  4  cents  a  yard,  and  by  another  at  5  cents.  It  is 
very  clear  that  the  purchaser  who  gives  5  cents  a  yard  would 
not  do  so  if  he  knew  that  he  could  just  as  easily  obtain  it  for 
4  cents.  Therefore  when  he  gives  5  cents  it  must  of  necessity 
be  either  because  he  does  not  know  that  it  can  be  obtained 
for  4  cents,  or  that  he  is  induced  to  believe  that  it  is  of  a 
better  quality  than  that  which  is  sold  at  4  cents,  or  else  because 
his  right,  to  purchase  from  the  4-cent  dealer  is  restricted.  On 
the  other  hand,  if  the  prices  vary  in  the  same  market  through 
the  producer  selling  at  less  than  cost,  as  is  not  infrequently  the 
case,  that  :too  must  be  the  result  of  similar  causes.  To  sell  for 
less  than  cost  is  to  lose  ;  and  to  continuously  do  that  willingly  is 
to  voluntarily  become  bankrupt, — a  course  too  absurd  for  sane 
people  to  pursue.  Whenever  a  dealer  sells  at  a  loss,  it  must  be 
because  ;  (r)  that  he  either  does  not  know  at  the  time  what  his 
9 


130  PRICES  TEND  TO  UNIFORMITY. 

goods  cost  him,  or  what  it  would  cost  him  to  replace  them  ;  (2) 
that  he  did  not  know  when  he  purchased  them  at  what  price  he 
would  have  to  sell  them  ;  (3)  that  he  miscalculated  his  own 
necessary  cost  in  handling  them  ;  (4)  that  he  offers  them  for 
less  than  cost  in  order  to  attract  customers  to  his  place  of  busi- 
ness in  the  hope  of  selling  them  other  commodities  at  an  over- 
charge equal  to  or  greater  than  his  undercharge  ;  (5)  that  he  is 
compelled  to  sell  at  a  loss  in  order  to  meet  urgent  demands  of 
previous  indebtedness  ;  (6)  that  he  is  uneconomically  handi- 
capped by  arbitrary  authority. 

It  will  readily  be  seen  that,  in  the  absence  of  all  these  condi- 
tions, the  consumer  would  not  give  more  nor  the  producer  take 
less  than  the  cost,  and  the  price  would  be  governed  by  the  pri- 
mary law  formulated  in  the  last  section.  It  will  also  be  observed 
that  the  changes  of  price  from  these  causes  are  not  economic 
variations,  but  that  they  are  all  uneconomic  perturbations.  That 
is  to  say,  they  are  fluctuations  from  the  economic  price,  and  are 
always  exchanges  in  which  one  gets  more,  or  the  other  less, 
than  an  equivalent.  That  these  perturbations  are  due  to  the 
causes  here  indicated  is  clearly  shown  by  the  fact  that  they  are 
greater  in  the  retail  than  in  the  wholesale  market,  and  greatest  of 
all  in  those  sections  of  the  retail  market  where  poverty  and 
ignorance  are  most  prevalent.  The  obvious  reason  for  this  is 
that  in  such  localities  the  average  consumer  is  more  ignorant,  and 
therefore  more  easily  imposed  upon,  both  as  to  the  price  and  the 
quality  of  the  commodities.  He  is  also  often  under  pecuniary 
obligations  to  the  merchant,  and  therefore  less  free  to  trade  else- 
where. It  will  also  be  found  that  in  these  sections  of  the  com- 
munity the  greatest  amount  of  misrepresentation  as  to  the  quality 
of  goods  prevails.  Among  retailers  who  sell  to  the  more  intelli- 
gent and  characterful  customers  this  variation  diminishes,  and 
the  same  articles  are  sold  at  a  more  uniform  price.  This  is 
inevitable  for  two  reasons.  First,  because  the  fraudulent  element 
is  largely  eliminated  through  the  impossibility  of  imposing  upon 
the  consumers  as  to  the  quality  ;  and  second,  becausg  the  pre- 
vailing prices  at  the  various  stores  are  more  generally  known  to 
the  consumer.  If  we  go  to  the  wholesale  markets,  where  the 
prices,  quality,  and  cost  are  still  more  correctly  known  by  the 
purchaser,  we  find  almost  no  variation  in  the  price  for  the  same 


ACTUAL  LAW  OF  PRICES.  13! 

article  in  the  same  market  at  the  same  time,  the  only  difference 
being  in  the  discount  to  purchasers  of  larger  quantities,  which  is 
a  purely  economic  transaction,  it  being  possible  to  handle  large 
quantities  at  a  lower  cost  per  unit  than  small  quantities.  It  will 
thus  be  seen  that,  just  in  proportion  as  the  causes  of  these  un- 
economic perturbations  are  eliminated,  the  price  tends  to  conform 
to  the  primary  law. 

Since  all  these  perturbations  from  the  economic  price  involve 
loss  to  the  producer  or  the  consumer,  according  as  it  is  above  or 
below  the  cost,  it  follows  that  all  the  motives  for  human  action 
will  tend  to  influence  both  the  consumer  and  the  producer  to 
avoid  disadvantageous  exchanges  just  as  fast  as  they  become  in- 
formed of  the  fact.  As  soon  as  the  consumer  discovers  that  he 
is  buying  roasted  peas  for  coffee,  cotton  for  wool,  or  paper  for 
leather,  he  will  endeavor  to  trade  where  this  fraud  is  not  practised 
upon  him.  Accordingly,  we  find  to-day  that,  in  the  best  houses 
on  Broadway,  the  reputation  for  integrity  is  an  important  feature 
of  business  success,  while  on  Canal  Street  and  the  extreme  east 
side,- ethics  in  business  is  of  no  commercial  importance.  On  the 
other  hand,  as  soon  as  the  producer  discovers  that  he  is  selling  at 
a  loss — whether  through  a  miscalculation  of  the  market,  a  wrong 
estimate  of  his  own  expenses,  a  misrepresentation  of  the  quality 
of  the  goods,  or  other  cause, — he  will  retrace  his  steps  and  en- 
deavor to  correct  the  error  for  the  future  ;  and  every  correction 
of  the  error  arising  from  any  of  these  causes  tends  to  bring  him 
back  to  the  position  which  he  thought  he  occupied,  namely  : 
purchasing  the  genuine  article  at  the  minimum  price.  It  is  thus 
evident  that  the  same  influences  which,  under  conditions  of 
economic  freedom,  make  prices  equal  the  cost  of  production,  will, 
under  conditions  of  uneconomic  perturbations,  constantly  force 
prices  to  tend  towards  that  point. 

Therefore,  the  actual  law  of  prices — the  law  to  which  the 
price  of  commodities  and  service  constantly  tends  to  conform 
— may  be  stated  thus  :  the  price  of  commodities  and  service  tends 
to  adjust  itself  to  the  cost  of  producing  the  most  expensive  portion 
of  the  supply  consumable  in  any  given  market,  this  tendency  in- 
creasing in  uniformity  and  persistence  directly  as  the  knowledge  of 
economic  phenomena  and  the  freedom  of  the  economic  action  are 
increased. 


132  RISE  AND  FALL    OF  PRICES. 

SECTION  V. —  Verification   of  the  Economic  La^v  of  Prices. 

If  this  hypothesis  is  correct  it  will  enable  us  to  explain  the 
price-movement  of  all  classes  of  commodities  and  service  with 
equal  correctness.  Will  it  stand  the  test  ? 

For  the  purposes  of  verification  price  phenomena  may  be  con- 
veniently grouped  as  follows  ;  (i)  manufactured  articles  whose 
production  is  entirely  subject  to  economic  influences  :  (2)  agri- 
cultural produce,  which  includes  all  classes  of  farm  and  garden 
products,  fruits,  etc.,  whose  quantity  and  quality  are  largely  effected 
by  non-economic  influences — /.  e.,  uncontrollable  cosmic  forces  : 
(3)  labor,  or  human  service,  which  is  chiefly  affected  by  social 
influences. 

i.  First,  then,  will  this  hypothesis  account  for  the  price-move- 
ment of  manufactured  commodities  ?  The  history  of  the  price 
of  manufactured  products  in  the  wholesale  market  shows  two 
characteristic  facts.  One  is  the  constant  tendency  of  prices  to 
permanently  fall  with  no  disadvantage  to  the  producer,  and  with- 
out any  perceptible  variation  in  the  ratio  of  demand  and  supply. 
The  other  is  a  tendency  to  periodic  "  over-production,"  which, 
instead  of  permanently  lowering  prices  proportionately  to  the 
relative  over-supply,  results  in  the  closing  of  factories  and  of 
workshops,  discharging  labor,  loss,  bankruptcy,  and  other  un- 
economic conditions.  Both  of  these  facts  are  adequately  accounted 
for  by  our  hypothesis. 

The  reason  that  the  price  of  manufactured  products  tends  to 
permanently  fall — with  mutual  advantage — is  that  the  cost  of 
producing  the  most  expensive  portion  of  the  supply  is  gradually 
diminished  through  the  concentration  of  capital  and  the  use  of 
improved  methods  of  production,  giving  a  larger  aggregate  product 
per  unit  of  productive  force.  This  theory  affords  an  equally  clear 
explanation  of  why  loss  and  bankruptcy  follow  so-called  over- 
production. It  is  because  the  increased  supply  involves  a 
corresponding  increase  in  the  cost  of  productive  force  that  no 
reduction  in  the  price  can  be  made  without  loss.  Consequently 
one  of  two  losing  alternatives  is  inevitable,  namely  :  either  to  sell 
at  less  than  cost,  or  to  suspend  business.  When,  after  disposing 
of  the  surplus  through  one  or  the  other  of  these  losing  avenues, 
the  normal  process  of  production  is  again  resumed,  it  must  be  at 


AGRICULTURAL  PRICES.  133 

the  prices  which  previously  prevailed  ;  that  is  to  say,  the  price  of 
commodities  must  sustain  the  same  ratio  to  that  of  labor  as 
before,  for  the  reason  that  no  diminution  in  the  cost,  per 
unit  of  productive  force,  has  ta.ken  place.  Thus  prices  under 
both  conditions  obey  the  same  law,  namely  :  of  constantly  tending 
towards  the  cost  of  producing  the  most  expensive  portion  of  the  supply. 
Any  variation  of  prices  contrary  to  this  law  involves  economic 
loss  and  social  disadvantage. 

2.  The  price-movement  of  agricultural  products  is  quite  differ- 
ent from  that  of  manufactured  articles,  but,  if  examined  in  the 
light  of  this  hypothesis,  it  will  be  found  to  follow  exactly  the 
same  law.  In  manufactured  commodities  we  have  seen  that  the 
general  tendency  has  been  towards  lower  prices  without  loss  ; 
and  that  periodic  increase  of  production  (over-production)  fails 
to  lower  prices,  except  by  loss  and  bankruptcy.  In  agriculture, 
these  two  facts  are  reversed.  The  general  tendency  of  agri- 
cultural prices  is  to  rise  without  increasing  the  profits,  and  the 
periodic  increase  of  production  (exceptionally  large  crops)  lowers 
prices  without  loss.  In  other  words,  the  general  tendency  of 
agricultural  prices  is  to  rise  without  any  perceptible  variation  in 
the  ratio  of  demand  and  supply,  but  in  the  yearly  product  prices 
rise  and  fall  with  the  demand  and  supply  ;  nor  is  the  reason  for 
this  hitherto  unexplained  phenomenon  difficult  to  understand. 

The  price  of  agricultural  produce — especially  meat,  butter, 
poultry,  and  garden  products — tends  to  rise  for  the  reason  that 
the  cost  of  their  production  tends  to  increase.  This  is  due  to  the 
obvious  fact  that  the  use  of  labor-saving  methods  has  not  reduced 
the  cost  of  productive  energy  per  unit  as  much  as  the  general  rise 
of  wages  has  increased  it,  and  consequently  the  net  cost  of  pro- 
ducing the  most  expensive  portion  of  the  supply  in  agriculture 
has,  in  many  instances,  increased  during  the  present  century. 
Nor  is  the  fact  that  agricultural  prices  tend,  from  year  to  year,  to 
rise  and  fall  with  the  variation  in  the  demand  and  supply,  less 
easy  to  explain.  The  reason  for  this  is  that  the  sudden  increase 
in  the  supply  is  not  accompanied,  as  in  the  case  of  manufactured 
products,  with  a  corresponding  increase  in  the  cost.  Hence,  every 
unit  of  product  added  to  the  crop  diminishes  the  cost  of  every 
other  unit.  For  example,  if  the  normal  wheat  crop  in  1889  were 
20  bushels  per  acre,  and,  through  the  influence  of  a  favorable 


134  PRICES  IN  DIFFERENT  COUNTRIES. 

season,  the  crop  in  1890  should  be  30  bushels  per  acre,  each 
bushel  in  1890 — with  the  exception  of  the  items  of  harvesting, 
threshing,  and  transportation — would  cost  about  one  third  less 
than  in  1889.  Therefore  the  price  per  bushel  of  that  crop  might 
fall  about  25  per  cent,  without  any  injury  to  the  farmer,  because," 
with  the  exception  of  the  items  referred  to,  the  30  bushels  in  1890 
did  not  cost  any  more  than  did  the  20  bushels  the  previous  year. 
The  increased  supply  being  chiefly  gratuitous,  it  reduced  the  cost 
per  bushel  of  the  whole  crop  to  that  extent.  This  explains  the 
fact,  so  common  in  the  history  of  agriculture,  that  farmers  often 
get  as  much  for  a  small  crop  as  for  a  large  one. 

The  increased  or  diminished  quantity  only  affects  the  price 
through  operating  upon  the  cost.  And  the  only  reason  why  the 
price  of  shoes  does  not  fall  with  the  increased  supply — without 
loss  to  the  producer — and  the  price  of  wheat  does,  is  because  the 
increase  in  the  supply  of  shoes  does  not  diminish  the  cost  of  pro- 
ducing the  shoes,  while  with  every  increase  in  the  supply  of  the 
wheat  the  cost  of  its  production  is  proportionately  reduced. 
Therefore,  while  the  price  of  agricultural  products  follows  the 
variations  of  supply  and  demand,  it  is  really  governed  by  the 
same  economic  force  as  that  of  manufactured  products,  namely  : 
the  cost  of  producing  the  most  expensive  portion  of  the  supply. 

Moreover,  this  hypothesis  not  only  accounts  for  the  disparity 
between  the  general  movement  of  the  prices  of  agricultural  and 
manufactured  products  in  civilized  countries,  but  it  also  affords 
a  rational  explanation  of  why  they  practically  move  together  in 
uncivilized  countries.  When  we  recognize  the  fact  that  the  price 
of  agricultural  produce  in  civilized  countries  tends  to  rise,  be- 
cause the  general  rise  of  wages  has  increased  the  cost  of  produc- 
tion more  than  the  use  of  labor-saving  methods  has  reduced  it; 
and  that  the  price  of  manufactured  products  tends  to  fall,  because 
the  use  of  labor-saving  methods  in  their  production  has  reduced 
the  cost  more  than  the  general  rise  of  wages  has  increased  it,  we 
have  no  difficulty  in  understanding  why  this  disparity  of  move- 
ment does  not  exist  in  less  civilized  countries,  where  machinery 
is  but  slightly  employed  in  either  manufacture  or  agriculture. 

3.  In  the  light  of  this  theory  the  infinite  variation  in  the  price 
of  labor,  which  has  hitherto  been  an  economic  enigma,  at  once 
assumes  a  rational  aspect  and  obeys  the  orderly  operation  of 


THE  PRICE   OF  LABOR.  135 

economic  law.  The  price  of  labor,  like  that  of  every  thing  else, 
constantly  tends  to  follow  the  line  of  the  cost  of  producing  the 
most  expensive  portion  of  any  given  commodity  in  the  same  mar- 
ket. The  price  of  the  Asiatic  is  lower  than  that  of  the  European, 
•and  the  price  of  the  European  is  lower  than  that  of  the  American, 
because  his  cost  is  less.  The  price  of  the  farm-laborer  is  lower 
than  that  of  the  mechanic,  and  the  price  of  the  mechanic  is  lower 
in  the  country  than  in  the  city  ;  the  price  of  the  mechanic  in  the 
city  is  lower  than  that  of  the  professional  classes,  and  the  price 
of  the  labor  of  women  is  lower  than  that  of  men  in  the  same 
grade,  for  the  simple  reason  that  the  cost  of  living,  and  conse- 
quently the  cost  of  their  labor,  is  less. 

What  we  have  seen  to  be  true  in  the  case  of  manufactured 
products  is  also  true  of  labor.  The  mere  increase  in  the  quan- 
tity, if  of  the  same  social  quality,  cannot  permanently  reduce  the 
price,  and  vice  versa.  It  may  create  enforced  idleness  which,  as 
in  the  case  of  over-production,  will  inflict  serious  loss,  but  these 
who  are  employed  must  still  receive  the  equivalent  of  their  cost. 
If,  however,  the  increased  supply  of  labor  is  due  to  the  intro- 
duction of  a  lower  social  quality — i.e.,  less  expensive  grade  of 
laborers, — this  will  tend  to  reduce  the  price.  But  the  fall  of  the 
price  in  this  case,  as  in  that  of  agriculture,  is  due  to  the  fact  that 
the  increased  quantity  was  accompanied  by  reduced  cost.  It  is 
the  failure  to  recognize  this  distinction  in  the  movement  of  price- 
making  phenomena  that  has  given  such  a  general  acceptance  to 
the  doctrine  of  demand  and  supply.  The  presence  of  the  quan- 
tity is  more  easily  observed  than  is  the  influence  of  the  social 
quality,  or  cost.  Hence  the  former  has  been  assumed  to  be  the 
determining  cause,  when  it  was  only  the  accompanying  incident, 
and  the  real  cause  has  been  generally  overlooked.  In  order  to 
illustrate  this  movement  in  the  case  of  wages,  let  us  suppose  that 
there  were  10,000  men  employed  in  a  given  industry — the  mini- 
mum cost  of  the  most  expensive  1,000  of  them  being  $2.00  a  day 
— if  the  laborers  in  that  industry  were  increased  to  15,000,  and 
the  least  expensive  of  the  new-comers  required  $2.00  a  day,  and 
the  remainder  of  them  required  more,  this  increase  of  laborers 
seeking  employment  would  not  reduce  wages.  The  result  would 
be  that  the  new-comers  would  fail  to  obtain  employment.  If,  on 
the  other  hand,  the  5,000  new-comers  were  from  a  lower  civiliza- 


136  QUALITY  NOT  QUANTITY  OF  LABOR. 

tion,  and  their  cost  of  living  were  only  $1.00  or  $1.50  a  day,  their 
influx  would  cause  a  reduction  in  the  rate  of  wages.  This 
would  not  be  brought  about  by  reducing  the  pay  of  the  most  ex- 
pensive that  had  been  previously  employed,  but  by  substituting 
the  new-comers  for  the  old,  in  which  case  the  dear  men  would  be 
supplanted  by  the  cheap  men.  The  $2.oo-a-day  men  would  not 
be  working  for  $1.00,  but  they  would  be  discharged  and  the 
$r.oo-a-day  men  would  take  their  places.  Thus,  while  the  rate 
of  wages  would  have  fallen,  it  would  not  have  fallen  for  the  same 
laborers,  but  it  would  have  fallen  to  the  level  of  the  new  laborers 
because  their  cost  was  lower.  This  is  what  investigation  has 
shown  to  be  the  case  in  hundreds  of  instances  where  non-union 
men  have  taken  the  places  of  strikers  at  a  lower  rate  of  wages. 
The  non-union  men  do  not  take  lower,  but  in  such  cases  often 
receive  higher,  wages  than  they  have  previously  obtained,  which 
increase  is  made  possible  for  them  by  the  union  men,  and  the 
union  men  who  struck  for  the  rise,  and  were  superseded  by  the 
non-union  men,  seldom  go  to  work  elsewhere  at  lower  wages, 
but,  as  a  rule,  find  employment  at  their  trade  or  in  some  other 
occupation  at  rates  approximating  those  which  they  struck  to 
secure.1 

If  the  market  for  labor  were  increased  with  the  advent  of  the 
new  laborers  so  that  the  whole  15,000  could  be  employed,  then 
no  reduction  of  wages  would  take  place  ;  because,  in  that  case, 
the  original  $2.oo-a-day  laborers  being  necessary,  they  still  would 
form  the  most  expensive  portion  of  the  supply,  and  their  cost 
would  consequently  determine  the  rate  of  wages,  and  $2.00  a  day 
would  continue  to  be  paid.  It  will  be  seen  that,  while  the  fall  in 
the  wages  accompanies  and  seems  to  be  fixed  by  the  increased 
supply,  it  is  really  governed  by  the  cost  of  the  most  expensive 
portion  of  the  necessary  supply.  The  fact  that  the  $2.oo-a-day 
laborers  were  no  longer  needed  destroyed  their  price-regulating 
influence. 

Suppose,  for  example,  that  10,000  $3.oo-a-day  American  me- 
chanics should  emigrate  to  a  given  locality  in  China  where  10,000 
laborers  were  working,  at  the  same  trade,  at  from  10  to  20  cents 

1  The  exception  to  this  is  where  the  strike  has  been  inaugurated  through  the 
undue  influence  of  a  few  individuals,  and  in  advance  of  the  demand  of  the  most 
advanced  20  per  cent,  of  the  class  or  trade. 


WAGE  VARIATION.  137 

a  day  ;  it  is  very  clear  that  the  competition  of  the  $3.oo-a-day 
Americans  against  the  10-  or  2o-cent-a-day  Chinamen  could  not 
reduce  their  wages, — although  the  supply  was  increased  over  the 
demand  by  100  per  cent.  The  result  in  such  a  case  would  be 
exactly  the  reverse  of  the  one  just  referred  to,  namely  :  that  the 
new-comers,  instead  of  supplanting  the  old,  and  thereby  estab- 
lishing a  lower  rate  of  wages,  if  employed  at  all,  would  necessarily 
establish  a  much  higher  rate  of  wages,  because  their  cost  would 
be  higher.  Other  things  remaining  the  same,  the  fact  would  be 
that  the  new-comers  would  not  be  employed, — because  their  cost 
would  be  so  much  greater  than  the  old  laborers,  and  therefore  the 
rate  of  wages  would  remain  unchanged,  and  the  new-comers  would 
remain  unemployed  ;  whereas,  in  the  other  case,  the  old  workers 
became  the  unemployed,  because  the  new-comers  were  less  ex- 
pensive. It  is  clear  then  that  the  increased  supply  affects  wages 
only  when  the  new-comers  introduce  a  variation  in  the  cost.  If 
they  are  cheaper  a  lower  price  will  be  established,  because  the 
cost-level  is  lower  ;  if  they  are  dearer  the  price  will  be  raised  (if 
they  are  employed),  because  the  cost-level  will  be  higher.  But 
the  latter  case  seldom  occurs,  because  the  dearer  man  will  seldom 
be  employed  in  preference  to  the  cheaper.  This  is  why  all  emi- 
gration is  from  countries  with  a  lower  wage-level  towards  those 
with  a  higher  wage-level ;  why  there  is  no  emigration  of  European 
laborers  to  Asia,  nor  of  American  laborers  to  Europe.  Here,  then, 
we  have  a  universal,  scientific  law  of  prices  which  explains  both 
the  permanent  economic  tendency  and  the  uneconomic  perturba- 
tions of  all  classes  of  price-receiving  phenomena. 


CHAPTER  V. 

THE  LAW  OF  THE  COST  OF  PRODUCTION. 
SECTION  I. — Popular  Errors  Regarding  the  Cost  of  Production. 

HAVING  seen  that  the  cost  of  production  is  the  controlling 
factor  in  the  law  of  prices,  we  are  now  led  to  the  consideration  of 
what  determines  the  cost  of  production.  The  popular  theory 
upon  this  subject,  though  suggested  by  Adam  Smith,  was  formu- 
lated and  most  ably  stated  by  Ricardo — who  insists  that  the 
"  natural  price  of  commodities,"  and  the  cost  of  their  production, 
are  determined  by  the  quantity  of  labor  involved. 

Assuming  the  existence  of  primitive  hunters  and  fishermen, 
Ricardo  says  :  "  The  comparative  value  of  the  fish  and  the  game 
would  be  entirely  regulated  by  the  quantity  of  labor  realized  in 
each  ;  whatever  might  be  the  quantity  of  production,  or  however 
high  or  low  general  wages  or  profits  might  be." '  What  is  true 
under  these  simple  conditions,  he  asserts,  will  always  be  equally 
true  in  the  most  complex  society. 

It  may  be  readily  admitted  that  the  same  principle  which  gov- 
erned the  cost  of  production  in  the  earliest  state  of  society  would 
obtain  under  the  most  complex  conditions,  but  before  we  can 
consent  to  interpret  the  complex  phenomena  of  modern  society 
by  a  hypothesis  based  upon  the  simple  conditions  of  the  most 
primitive  social  state,  we  must  at  least  be  sure  that  it  affords  the 
true  explanation  of  the  phenomena  from  which  it  was  constructed. 
It  frequently  happens  in  the  more  simple  stages  of  phenomena 
that  two  facts  occur  simultaneously,  either  of  which  appears  to  be 
the  cause  of  the  succeeding  phenomena  ;  and,  from  direct  sense 

1  "  Political  Economy  and  Taxation,"  p.  18. 
138 


SIMPLE  PHENOMENA    MISLEADING.  139 

impression,  that  which  is  most  easily  observed  is  most  likely  to 
be  regarded  as  the  cause.  When  the  phenomena  become  more 
complex,  however,  and  the  variations  more  numerous  and  subtle, 
the  effects  of  the  two  facts  are  separated,  and  it  becomes  of  vital 
importance  to  learn  which  of  the  two  enters  the  hypothesis. 

For  example,  when  only  the  simpler  astronomical  phenomena 
were  known,  the  geocentric  hypothesis  was  sufficient  to  account 
for  them  ;  but  as  the  observations  increased,  and  more  complex 
phenomena  appeared,  the  theory  that  the  earth  was  the  centre  of 
the  solar  system  became  wholly  inadequate,  and  the  heliocentric 
hypothesis  was  necessary.  So,  too,  when  only  the  simpler  geologi- 
cal phenomena  were  observed,  the  theory  of  a  special  creation 
appeared  all-sufficient,  but  as  the  knowledge  of  geological  phe- 
nomena increased,  this  theory  became  inadequate  to  explain  the 
age  of  the  earth,  and  had  to  be  abandoned.  The  same  plausible 
error  is  also  apparent  in  the  law  of  supply  and  demand.  At  first 
glance,  the  statement  that  the  quantity  of  labor  devoted  to  pro- 
curing the  game  and  the  fish  determines  their  cost  seems  quite 
plausible,  but  if  we  examine  the  case  of  the  primitive  man  a  little 
closer  we  shall  find  that  an  oversight  similar  to  those  just  men- 
tioned has  been  committed.  We  will  assume,  as  Ricardo  evidently 
does,  that  the  habits  and  customs  of  the  hunter  and  the  fisherman 
are  identical.  If  so,  and  the  hunter  can  average  one  deer  a  day, 
and  the  fisherman  can  catch  two  salmon  a  day,  the  quantity  of 
labor  devoted  to  procuring  one  deer  and  that  devoted  to  procur- 
ing two  salmon  would  be  exactly  alike.  It  would  then  be  per- 
fectly correct  to  say  that  the  cost  of  two  salmon  would  be  exactly 
equal  to  that  of  one  deer.  In  other  words,  the  cost  of  producing 
either  salmon  or  deer  would  always  be  identical  with  the  quantity 
of  labor  devoted  to  procuring  either  of  them.  It  will  be  observed, 
however,  that  it  would  be  equally  correct  to  say  that  the  cost  of 
producing  either  the  deer  or  the  salmon  was  always  identical  with 
the  cost  of  the  labor  devoted  to  procuring  them,  because,  under 
these  conditions,  the  cost  of  a  given  quantity  of  labor  is 'exactly 
the  same  in  either  case.  Therefore,  the  variation  of  the  quantity 
of  labor  is  a  variation  of  the  cost  of  labor.  Hence,  so  far  as  ex- 
plaining this  simple  class  of  phenomena  is  concerned,  it  would 
make  no  difference  whether  we  assume  that  the  cost  of  the  deer 
or  the  beaver  is  determined  by  the  quantity  or  by  the  cost  of  the 


I4O  RICARDffS  ILLUSTRATION. 

labor  which  is  devoted  to  their  production,  because  in  this  case 
the  two  facts  are  identical. 

If  we  push  the  inquiry  a  little  further,  and  ask  why  the  quan- 
tity of  labor  devoted  to  procuring  deer  or  salmon  determines  the 
cost,  the  true  answer  is  because  a  given  quantity  of  effort  involves 
a  given  amount  of  cost  to  the  laborer  ;  hence,  the  more  labor  he 
puts  into  a  thing  the  greater  is  its  cost.  And  if  we  ask  why  the 
cost  of  labor  should  affect  the  cost  of  the  product,  the  obvious 
answer  is  because  the  laborer  must  obtain  as  much  for  his  labor 
as  it  cost  him,  or  he  could  not  continue  to  furnish  it. 

It  thus  appears  that  the  mere  quantity  of  labor  devoted  to 
catching  the  deer  or  salmon  affects  their  cost  only  as  it  represents 
the  cost  of  the  effort  to  the  laborers,  and  hence  the  amount  which 
they  must  obtain  for  it.  In  other  words,  the  same  quantity  of 
labor  involves  the  same  cost  to  the  hunter  and  the  fisherman  only 
because  the  cost  of  a  unit  of  labor  is  the  same  to  each  man. 
Therefore,  while  it  is  true  in  this  case  that  the  cost  of  producing 
the  deer  or  the  salmon  varies  exactly  with  the  change  in  the  quan- 
tity of  labor  devoted  to  obtaining  them  ;  in  the  other  cases  the 
cost  of  the  product  varies  with  the  quantity  of  labor,  because  every 
variation  in  the  quantity  carries  with  it  a  variation  in  the  cost  of 
that  labor.  To  show  this  more  clearly,  let  us  take  the  same  two 
men  and  suppose  that  the  cost  of  living  of  the  hunter  is  double 
that  of  the  fisherman  ;  that  he  either  consumes  more  expensive 
things,  or  that  a  greater  number  of  things  enter  into  his  life.  In 
this  case,  if  he  can  only  kill  a  deer  a  day,  and  the  fisherman  can 
catch  two  salmon  a  day,  one  deer  will  cost  twice  as  much  as  two 
salmon,  although  no  more  labor  is  devoted  to  catching  it.  The 
reason  that  the  deer  costs  more  is  because  the  labor  devoted  to 
catching  it  is  more  expensive.  Since  the  labor  of  the  hunter 
costs  twice  the  labor  of  the  fisherman,  an  hour's  labor  devoted  to 
hunting  costs  twice  as  much  as  an  hour's  labor  devoted  to  fish- 
ing ;  consequently  the  cost  of  the  product  of  the  hunter  will  be 
double  that  of  the  fisherman.  Thus  we  see  that  in  the  last  analy- 
sis— even  in  the  case  of  the  primitive  man — it  is  not  merely  the 
quantity,  but  the  cost,  of  the  labor  that  really  determines  the  cost 
of  the  product.  Therefore,  the  statement,  that  the  same  amount 
of  labor  always  involves  the  same  cost  in  production,  is  only  true 
when  it  is  accompanied  by  the  other  fact,  namely,  that  the  labor 
in  both  cases  costs  the  same. 


COST  AND   QUANTITY  CONFOUNDED.  14! 

If  we  follow  Ricardo  from  his  primitive  hunter  and  fisherman 
to  his  modern  "  stocking  maker  "  we  shall  see  how  completely  the 
error  resulting  from  the  failure  to  recognize  this  distinction  per- 
meates his  whole  doctrine  and  vitiates  his  conclusions  regarding 
the  cost  of  production.  He  says  :  "  If  we  look  to  a  state  of 
society  in  which  greater  improvements  have  been  made,  and  in 
which  the  arts  and  commerce  flourish,  we  shall  still  find  that 
commodities  vary  in  value  conformably  with  this  principle.  .  .  . 
To  convince  ourselves  that  this  is  the  real  foundation  of  exchange- 
able value,  let  us  suppose  any  improvement  to  be  made  in  the 
means  of  abridging  labor  in  any  one  of  the  various  processes 
through  which  the  raw  cotton  must  pass,  before  the  manufactured 
stockings  come  to  the  market,  to  be  exchanged  for  other  things, 
and  observe  the  effect  which  will  follow.  If  fewer  men  were  re- 
quired to  cultivate  the  raw  cotton,  or  if  fewer  sailors  were  em- 
ployed in  navigating,  or  shipwrights  in  constructing,  the  ship  in 
which  it  was  conveyed  to  us  ;  if  fewer  hands  were  employed  in 
raising  the  buildings  and  machinery,  or  if  these,  when  raised, 
were  rendered  more  efficient,  the  stockings  would  inevitably  fall 
in  value,  and  consequently  command  less  of  other  things.  They 
would  fall  because  a  less  quantity  of  labor  was  necessary  to  their 
production.  .  .  .  No  alteration  in  the  wages  of  labor  produces 
any  alteration  in  the  relative  value  of  these  commodities."  '  It 
will  be  observed  that  Ricardo's  conclusions  in  regard  to  the  stock- 
ings are  true  only  on  the  condition  that  something  else  is  true — 
namely,  that  the  price  of  labor  has  remained  the  same.  Although 
reducing  the  quantity  of  labor  in  the  manufacture  of  stockings 
may,  it  does  not  follow  that  it  necessarily  will,  produce  the  effect 
here  stated. 

As,  for  example,  suppose  that,  through  the  use  of  improved 
machinery,  the  stockings  could  be  made  with  one  tenth  fewer  men, 
and,  at  the  same  time,  that  the  price  of  the  laborers  still  employed 
in  making  them  were  increased  ten  per  cent.,  the  cost  of  pro- 
ducing the  stockings  would  remain  absolutely  unchanged,  al- 
though ten  per  cent,  less  labor  was  devoted  to  their  production. 
And,  consequently,  if  the  price  of  labor  were  advanced  ten  per 
cent.,  and  the  quantity  of  labor  required  to  make  the  stockings 
remained  the  same  (a  fact  of  common  occurrence),  the  cost  of 

"  Principles  of  Political  Economy  and  Taxation,"  pp.  17-19. — McCulloch's 
edition,  1881. 


142  JBRASSEY'S  EXPEDIENCE. 

producing  the  stockings  would  then  rise  ten  per  cent,  without  any 
change  whatever  in  the  quantity  of  labor  required  to  produce 
them.  It  is  thus  very  clear  that  the  cost  of  producing  the  stock- 
ings may  change  without  any  alteration  in  the  quantity  of  labor 
expended  upon  them,  or  the  quantity  of  labor  may  change  with- 
out any  variation  in  the  cost  of  making  the  stockings.  Whether 
or  not  a  change  in  the  quantity  of  labor  required  to  make  the 
stockings  will  change  the  cost  of  their  production,  depends  en- 
tirely upon  whether  it  makes  any  change  in  the  total  amount  paid 
for  the  labor  employed  in  producing  them. 

The  experience  of  Mr.  Thomas  Brassey,  who  probably  em- 
ployed a  greater  number  of  laborers  in  more  countries  than  any 
other  man  in  the  world,  fully  establishes  this  position.  Some  of 
Mr.  Brassey's  experiences  while  employing  labor  in  the  construc- 
tion of  railroads  in  England,  France,  Spain,  Italy,  Saxony,  Aus- 
tria, Hungary,  Belgium,  Moldavia,  Austria,  Canada,  the  Argentine 
Republic,  Syria,  Persia,  and  India,  when,  according  to  Sir  Arthur 
Helps,  he  sometimes  had  over  eighty  thousand  persons  in  his  em- 
ploy at  one  time,  are  given  by  his  son  in  his  book  called  "  Work 
and  Wages." 

In  the  construction  of  the  Grand  Trunk  Railroad,  so  far  as 
French  Canadians  were  employed,  he  shows  that  about  two  fifths 
more  labor  was  required  to  do  the  same  work  than  in  England.1 
Still  the  total  cost  was  about  the  same.  In  the  construction  of 
the  Paris  and  Rouen  railroad  in  France  a  similar  result  is  shown. 
Five  days  of  a  Frenchman's  labor  was  only  equal'to  three  of  an 
Englishman's  ;  still  a  mile  of  road  built  by  the  French  laborers 
cost  no  more  than  the  road  built  by  the  English  laborers,  simply 
because  two  fifths  less  wages  were  paid  to  the  French  than  to  the 
English  laborers."  So,  in  the  quarry  at  Bonnieres,  four  French- 
men, or  three  Irishmen,  were  found  to  be  equal  to  two  Eng- 
lishmen.3 

In  contrasting  the  quantity  of  work  and  wages  in  England  and 
Ireland,  Mr.  Brassey  shows  that,  although  about  twice  as  many 
laborers  were  required  in  Ireland  as  in  England  to  build  a  mile 
of  railroad,  "  sub-contracts  in  the  Irish  railroad  were  let  at  the 
prices  which  had  been  previously  paid  in  Staffordshire."  4  And 

1  "  Work  and  Wages,"  pp.  86,  87.  *  Ibid.,  p.  82. 

*  Ibid.,  pp.  79-82.  4  Ibid.,  p.  69. 


HIGH-PRICED   LABOR  THE   CHEAPEST.  143 

in  India,  where  the  "  sweat  and  sacrifice "  of  twelve  or  more 
native  laborers  was  bestowed  on  making  as  much  road  as  would 
be  accomplished  by  one  Englishman,  Mr.  Brassey  declares  that, 
"  mile  for  mile,  the  cost  of  railway  work  is  about  the  same  as  in 
England."  '  The  same  is  true  of  other  industries.  The  toil  of 
fifty-two  laborers  is  required  in  smelting  the  same  amount  of  pig- 
iron  in  France  as  is  done  by  twenty-five  laborers  on  the  Tees  2  ; 
and  the  cost  of  producing  the  iron  in  the  two  countries  is  about 
the  same.  Statistics  show  that  the  same  variation  in  the  quan- 
tity of  labor  required  to  produce  the  same  commodities  in  dif- 
ferent countries  prevails  in  different  branches  in  the  same 
countries,  and  consequently  that  //  is  invariably  the  total  amount 
paid,  and  not  the  quantity  of  labor  employed,  which  determines  the 
cost  of  production. 

SECTION   II. — Higk-Priced  Labor  Makes  Low  Cost  of  Pro- 
duction and  Cheap  Products. 

After  what  has  been  said,  to  affirm  that  a  rise  in  the  wages  of 
labor  will  lessen  the  cost  of  production  and  diminish  prices,  may 
have  a  paradoxical  seeming.  If  the  value  of  commodities  is  de- 
termined by  the  cost  of  production,  and  the  cost  of  production  is 
determined  by  the  price — and  not  by  the  quantity, — of  labor  it 
would,  at  first,  seem  to  follow,  that  a  rise  of  wages  involves  an  in- 
crease of  cost  and  a  consequent  rise  in  the  price  of  products. 
But  this  is  one  of  the  many  instances  in  economics  where  things 
are  not  as  they  appear  from  direct  observation.  Ricardo  could 
see  that,  other  things  being  the  same,  any  variation  in  the  quan- 
tity of  labor  expended  causes  a  corresponding  variation  in  the 
cost  of  production  ;  but  he  could  not  see  that  any  change  in  the 
price  of  labor  has  the  same  effect.  To  him,  the  only  result  of  a 
rise  in  wages  is  a  fall  in  profits.  Indeed,  he  explicitly  declares  : 
"  No  alteration  in  the  wages  of  labor  could  produce  any  altera- 
tion in  the  relative  value  of  these  commodities  "  * ;  but  he  adds  : 
"  Not  so  with  the  other  great  cause  of  the  variation  in  the  value 
of  commodities,  namely  :  the  increase  or  diminution  of  the  quan- 

1  "  Work  and  Wages,"  pp.  79-82. 

3  F.  A.  Walker,  "  Wages  Question,"  p.  44.  See  also  Brassey's  "  Work  and 
Wages,"  p.  165,  2d  edition. 

3  "  Principles  of  Political  Economy  and  Taxation,"  p.  19. 


144  RELATION  OF  WAGES  TO  MACHINERY. 

tity  of  labor  necessary  to  produce  them.  .  .  .  Every  improve- 
ment in  machinery,  in  tools,  in  buildings,  in  raising  the  raw 
material,  saves  labor  and  enables  us  to  produce  the  commodity 
to  which  the  improvement  is  applied  with  more  facility,  and 
consequently  its  value  alters."  ' 

In  saying  that  improved  machinery  is  the  potent  means  of 
reducing  the  cost  of  production,  Ricardo  recognized  a  funda- 
mental truth,  but  by  failing  to  see  the  connection  between 
machinery  and  wages,  he  entirely  overlooked  the  influences 
which  promote  the  use  of  the  labor-saving  methods.  If  he  had 
seen  the  logical  necessity  of  explaining  the  causes  that  promote 
the  use  of  machinery  as  clearly  as  he  did  see  the  fact  that 
machinery  reduces  the  cost  of  production,  his  investigations 
would  have  forced  him  into  recognizing  the  absurdity  of  his 
cheap-labor  doctrine.  All  writers  on  economics  have  shown  a 
due  appreciation  of  the  fact  that  the  extensive  use  of  capital  and 
improved  methods  is  indispensable  to  the  large  and  cheap  pro- 
duction of  wealth.  Nor  have  they  had  any  difficulty  in  seeing 
that,  by  the  increased  concentration  of  capital,  the  cost  of  pro- 
duction and  the  price  of  commodities  have  been  lowered  ;  but 
they  have  made  practically  no  effort  to  explain  how  the  success- 
ful use  of  capital  and  machinery  becomes  possible.  Adam  Smith 
did  go  far  enough  to  see  that  the  division  of  labor  and  the  use  of 
capital  was  "  limited  by  the  extent  of  the  market,"  but  it  did  not 
occur  to  him  to  consider  the  economic  relation  that  wages  sustain 
to  the  extent  of  the  market,  and  that  relation  has  been  largely 
overlooked  since  his  time. 

American  writers  have  recently  attempted  to  approach  this 
subject  on  independent  lines.  The  most  creditable  efforts  in 
this  direction  are  those  of  Stuart  Wood  and  John  B.  Clark." 
Both  of  these  writers  fully  recognize  auxiliary  capital  as  the 
means  of  lessening  the  cost  of  production  and  of  cheapening 
commodities.  Indeed,  they  go  one  step  further  and  recognize 
the  fact  that  capital,  or  machinery,  can  only  be  employed  in  pro- 
duction when  it  is  cheaper  as  a  productive  force  than  labor. 
"  Machinery  is  preferred,"  says  Stuart  Wood,'  "  simply  because 

1  Principles  of  Political  Economy  and  Taxation,  p.  24. 

8  "  Publications  of  American  Economic  Association,"  vol.  iv.,  No.  I. 

*  Quarterly  Joiirnal  of  Economics,  pp.  67,  68. 


STUART    WOOD'S    THEORY.  145 

the  cost  of  production  is  lessened  by  its  use.  Also,  in  many  pro- 
cesses now  executed  by  hand,  machinery  would  be  equally  effi- 
cient, but  it  is  not  used  because  it  would  involve  a  greater  cost 
of  production,  .  .  .  but  there  are  other  cases  in  which  the 
cost  is  equal,  or  very  nearly  equal,  whether  labor  is  employed,  or 
auxiliary  capital.  In  such  cases,  the  slightest  change  in  the  price 
of  labor  immediately  affects  the  demand  for  it  ...  Where 
'the  cost  is  just  equal,  labor  and  capital  will  be  used  indifferently. 
On  either  side  of  this  point  that  one  of  the  two  will  be  employed 
which  is  relatively  the  cheapest." 

Stuart  Wood  manifestly  sees  that  something  in  addition  to  the 
mere  existence  of  capital  is  necessary  to  make  its  economic  use 
possible.  It  is  also  clear  to  him  that  nothing  can  do  this  which  does 
not  make  capital  cheaper  than  labor,  as  a  means  of  production. 
The  important  question  that  arises  here  is  the  same  as  that  which 
confronted  Ricardo,  namely  :  how,  or  under  what  conditions, 
will  the  use  of  capital  become  cheaper  than  labor  ?  To  this 
question  Wood,  like  Ricardo,  is  silent.  The  nearest  that  he 
comes  to  dealing  with  it  is  to  suggest  that  the  one  will  be  em- 
ployed which  will  accept  the  least  return  for  its  effort. 

According  to  this  theory,  capital  can  only  be  employed  by  dis- 
charging labor.  If  this  doctrine  is  correct,  the  anti-power-loom 
rioters  in  England  were  right,  and  the  ignorant  laborers — who  to- 
day oppose  the  introduction  of  improved  machinery — are  acting 
upon  sound  economic  principles.  In  short,  the  factory  methods  of 
production  would  simply  mean  the  degradation  of  labor,  and  the 
charge  so  commonly  made  by  the  socialists,  that  capitalists  are 
the  natural  enemy  of  the  laborer,  would  be  fully  sustained,  be- 
cause the  effect  of  capital  would  constantly  be  to  compel  the 
laborer  to  choose  between  low  wages  and  enforced  idleness. 

Again,  if  capital  could  only  be  employed  by  discharging  labor 
it  would  destroy  its  own  success.  By  discharging  the  laborer  it 
would  destroy  his  power  to  consume,  and  thereby  reduce  the 
markets  for  its  own  products.  The  enforced  idleness  thus  cre- 
ated reduces  the  market  in  exactly  the  same  proportion  that  the 
use  of  capital  saves  labor,  and  consequently  all  that  is  gained  by 
the  cheap  product  is  lost  by  the  increased  idleness. 

This  theory  is  clearly  contrary  to  experience.  It  is  one  of  the 
most  obvious  facts  in  the  history  of  machine-made  products 


146  FUNCTION'  OF  CAPITAL. 

that  the  use  of  capital  and  machinery  in  production  does  not 
permanently  increase  enforced  idleness  among  the  laborers. 
There  are  three  important  facts  always  connected  with  the  use 
of  machinery,  (i)  It  can  only  be  employed  when  it  can  do  the 
work  cheaper  than  labor.  (2)  It  can  only  do  the  work  cheaper 
than  labor  when  it  produces  the  same  amount  with  less  labor. 
(3)  It  can  only  successfully  save  labor  when  it  is  accompanied  by 
new  employment  creating  conditions.  Displaced  labor  can  only 
be  saved  when  it  is  re-employed.  How  to  create  new  employ- 
ments to  absorb  the  discharged  laborers  must  be  explained  before 
the  question — how  capital  can  become  a  cheaper  productive  force 
than  labor — can  be  answered. 

The  great  fact  underlying  all  successful  production  is  con- 
sumption. The  first  condition  to  the  success  of  any  method  in 
production  is  a  market  for  the  products  ;  therefore  nothing  can 
make  the  use  of  capital  successful  which  does  not  supply  a  mar- 
ket for  the  products.  The  mistake  of  Wood's  theory  is  that  it 
fails  to  reckon  with  this  fact.  It  assumes  that  which  Clark  more 
explicitly  states,1  namely  :  "  As  capital  outgrows  labor  in  quan- 
tity ...  it  pushes  outward  the  independent  margin  of  its  own 
field."  This  is  an  entire  mistake.  Capital  can  only  become  an 
active,  productive  force  under  certain  social  and  economic  con- 
ditions, and  it  is  wholly  powerless  to  create  these  conditions  for 
itself.  Capital  is  a  tool,  or  instrument,  and  its  function  is  to 
supply  markets,  but  not  to  make  them, — a  fact  that  these  econo- 
mists have  overlooked.  If  their  doctrine  were  correct,  every 
increased  supply  of  a  commodity  at  a  reduced  price  would 
be  certain  to  find  a  market ;  and  yet  the  patent-offices  of  the 
world  supply  evidence  to  the  contrary.  Thousands  upon  thou- 
sands of  examples  of  improved  contrivances,  that  can  produce 
commodities  at  less  than  current  price,  cannot  be  used  because 
their  products  cannot  be  sold. 

It  is  true,  within  certain  limits,  that  to  reduce  the  price  of  a 
commodity  will  increase  the  sales,  because  that  will  put  it  within 
the  reach  of  those  who  previously  desired  it,  but  whose  desire 
was  not  sufficiently  strong  to  induce  them  to  give  the  larger  price. 
It  is  only  because  the  desire  already  exists,  however,  that  the 
product  can  be  sold,  even  at  the  reduced  price.*  The  most  that 

1  Publications  of  Economic  Association,  vol.  iv.,  No.  i,  p.  57. 

2  This  much  was  clear  even  to  Ricardo,  for  he  says  :   "If  the  natural  price  of 


IMPORTANCE   OF   THE  MARKET.  147 

can  ever  occur  in  this  line  is  that  the  price  can  descend  to  meet 
the  weakest  effectual  demand. 

It  is  entirely  outside  the  province  and  power  of  capital  to 
create  the  conditions  for  its  own  successful  employment.  Were 
this  otherwise,  capital  would  never  be  idle,  and  failure,  bank- 
ruptcy, and  industrial  depressions  could  never  occur,  because  it 
could  always  make  investments  profitable  by  creating  markets  for 
its  own  products  ;  whereas  we  know  that  hundreds  of  millions  of 
dollars  are  constantly  waiting  for  an  opportunity  to  be  profitably 
employed,  and  failure,  bankruptcy,  and  industrial  depressions  are 
among  the  most  painful  industrial  experiences. 

Since  capital  can  only  be  profitably  employed  when  it  can  work 
cheaper  than  labor,  and  since  neither  the  formation  of  new  indus- 
tries nor  the  extension  of  old  ones  is  possible  without  an  increase 
in  the  consumption,  it  follows  that  the  employment  of  capital  in 
production  finally  depends  upon  the  extension  of  the  market  for 
commodities.  No  theory,  therefore,  can  explain  the  employment 
of  capital  which  does  not  explain  the  creation  of  new  or  larger 
markets.  This  neither  Ricardo,  Wood,  nor  Clark  has  done,  and 
consequently  they  have  failed  to  explain  how  capital  can  become 
cheaper  than  labor,  and  machinery  be  economically  substituted 
for  muscle. 

It  should  be  remembered  that  it  is  a  characteristic  feature  of 
the  use  of  machinery  that  its  superiority  over  labor  does  not 
consist  in  its  capacity  to  produce  a  small  amount  of  wealth  at  a 
less  cost  than  labor,  but  chiefly  in  its  power  to  produce  a  much 
larger  quantity  at  a  relatively  less  cost,  i.e.  a  smaller  cost  per 
unit  of  product.  And,  as  the  cost  of  the  whole  product  must  be 
defrayed  by  the  income  from  that  portion  which  is  sold,  the  eco- 
nomic success  of  the  machine  depends  upon  the  possibility  of 
selling  all  the  increased  quantity  which  it  produces. 

There  is  no  fact  in  modern  history  more  easily  demonstrated 
than  that  the  products  of  steam-driven  machinery  are  mainly 
consumed  by  the  common  people — the  masses.  While  the  mid- 
labor  should  fall  50  per  cent,  from  some  great  discovery  in  the  science  of  agri- 
culture, the  demand  would  not  greatly  increase,  for  no  man  would  desire  more 
than  would  satisfy  his  wants  ;  and  as  the  demand  would  not  increase,  neither 
would  the  supply,  for  a  commodity  is  not  supplied  merely  because  it  can  be 
produced,  but  because  there  is  a  demand  fur  it."—  •"  Principles  of  Political 
Economy  and  Taxation,"  chapter  xxx.,  p.  234,  McCulloch's  edition,  i8Sl. 


148  WAGES  MEASURE   CONSUMPTION. 

die  and,  to  some  extent,  the  upper  classes  consume  machine-made 
products,  their  consumption  constitutes  such  a  small  proportion 
of  the  market  that  probably  no  modern  factory  or  railroad  could 
be  sustained  by  their  demand,  at  present  prices.  It  is  therefore 
the  consumption  of  the  laboring  classes  which  determines  the 
success  or  failure  of  factory  methods  of  production.  This  ex- 
plains why  the  railroads  and  the  factory  system  cannot  be 
employed  in  Asia,  Africa,  and  the  more  backward  countries  in 
continental  Europe,  where  the  wages  are  low  and  the  masses 
consume  but  slightly  of  manufactured  products. 

Therefore,  as  wages  must  measure  the  extent  of  consumption 
by  the  masses,  we  are  inevitably  driven  to  the  conclusion  that  in- 
stead of  the  advance  of  wages  being  dependent  upon  the  more 
extensive  use  of  capital  and  machinery, — as  Wood  and  Clark  1 
and  the  wage-fund  economists  would  have  us  believe,  the  fact  is 
exactly  the  reverse,  and  the  successful  use  of  capital  depends 
upon  the  general  and  permanent  rise  of  wages.  Clearly,  then,  it 
is  to  the  influences  that  promote  the  rise  of  wages  that  we  must 
look  for  the  extension  of  the  use  of  capital,  and  the  consequent 
lessening  of  the  cost  of  production  and  lowering  of  prices.  Al- 
though the  consideration  of  the  law  of  wages,  and  the  influences 
that  promote  their  increase,  will  be  deferred  to  a  subsequent 
chapter,  it  is  not  difficult  to  see  at  present  how,  through  the  nor- 
mal operation  of  economic  law,  a  rise  of  wages  necessarily  tends 
to  promote  the  use  of  capital  and  machinery. 

Wages,  being  the  price  of  labor,  are  chiefly  influenced  by  the 
social  forces  that  determine  the  life  and  character  of  the  laborer. 
Although  their  upward  movement  is  always  subtle  and  composite, 
moving  in  almost  insensible  gradations,  it  is  none  the  less  positive 
and  aggressive.  The  first  economic  effect  of  the  laborer's  demand 
for  high  wages  is  an  increase  of  pressure  upon  the  employer's 
profit,  who  will  endeavor  to  avoid  it  by  passing  it  on  to  the  con- 
sumer in  the  form  of  higher  prices.  The  consumer,  acting  upon 
the  same  principle,  endeavors  to  resist  the  higher  prices  by  refus- 

1  "  By  this  twofold  action  only  can  wages  rise  with  greater  rapidity.  But  that 
movement  of  the  margins  is  possible  only  by  means  of  a  considerable  excess 
in  the  supply  of  capital  unbalanced  by  labor." — "  Possibility  of  a  Scientific  Law 
of  Wages,"  in  Publications  of  American  Economic  Association,  vol.  iv.,  No.  I, 
p.  59- 


THE  LAW  OF  PRICES.  149 

ing  to  purchase,  or  by  buying  a  smaller  quantity  of  the  products, 
thus  forcing  the  manufacturer  to  lose  by  smaller  sales  what  he 
gains  by  increased  prices.  On  the  other  hand,  if  the  employer 
attempts  to  resist  the  upward  tendency  of  wages,  he  is  met  by  the 
stoppage  of  his  works,  and  this  involves  an  economic  loss  which 
will  only  be  encountered  as  a  last  resort.  Ultimately,  therefore, 
the  employer  is  compelled  to  choose  between  the  use  of  the  im- 
proved methods  by  which  his  commodities  can  be  made  cheaper, 
or  the  loss  of  his  profits,  and  perhaps  of  his  capital.  Thus,  while 
unconsciously  avoiding  the  dangers  that  beset  him,  he  becomes 
able  to  produce  a  larger  amount  at  the  same  cost,  and  by  this 
means  he  can  comply  with  the  demand  of  his  laborers  for  higher 
wages  without  diminishing  his  profits — and  often  reduce  the  price 
of  the  commodity  as  well.  A  reduction  in  the  price  puts  com- 
modities within  the  reach  of  another  large  class  who  were  pre- 
viously unable  to  consume  them,  and  the  market  is  thereby 
extended,  thus  enlarging  the  income  without  raising  the  rate  of 
profit ;  all  of  which  tends  to  further  increase  the  demand  for 
labor,  and  to  improve  the  general  well-being  of  the  community. 

We  are  now  in  a  position  to  present  a  complete  formula  of  the 
law  of  prices,  thus  :  (i)  The  price  of  commodities  constantly 
tends  towards  the  cost  of  producing  the  most  expensive  portion 
of  the  necessary  supply  in  any  given  market — the  movement  tow- 
ard that  equilibrium  increasing  directly  as  economic  knowledge 
and  freedom  are  extended,  and  inversely  as  they  are  restricted. 
(2)  The  cost  of  production  is  ultimately  determined  by  the  price 
of  labor  and  moves  inversely  with  wages.  (3)  Prices  are  finally 
governed  by  wages — rising  as  wages  fall,  and  falling  as  wages 
rise. 

If  we  regard  the  fact  that  high  wages  make  low  prices  as  a  ' 
principle  in  economic  law,  it  will  become  clear  that  a  low  paid 
man  is  the  dearest  thing  on  earth  ;  and  that,  through  the  democ- 
racy of  natural  law,  the  wealth  and  civilization  now  enjoyed  by 
the  most  advanced  people  can  be  made  cheaper  for  all,  than 
the  poverty  and  barbarism  which  now  prevail  among  the  great 
mass  of  mankind. 


CHAPTER  VI. 

MONEY  AND  ITS   ECONOMIC   FUNCTION. 
SECTION  I. —  What  is  Money  ? 

MONEY  is  generally  defined  as  the  medium  of  exchange.  The 
chief  objection  to  this  definition  is  its  indefiniteness.  In  order 
to  receive,  any  clear  idea  from  the  expression,  "  medium  of  ex- 
change," it  is  necessary  to  know  in  what  way  money  facilitates 
exchange.  Is  it  wealth,  or  is  it  only  a  representative  of  wealth  ? 
If  a  representative  of  wealth,  how  does  it  represent  it, — as  prop- 
erty, or  as  credit  ? 

Francis  A.  Walker  has  endeavored  to  solve  this  difficulty  by 
defining  money  '  as  "  that  which  passes  freely  from  hand  to 
hand  throughout  the  community  in  final  discharge  of  debts  and 
full  payment  for  commodities."  This  has  been  accepted  by 
Sidgwick  and  others  as  the  best  and  most  complete  definition  of 
money  yet  given,  and  as  such  it  is  used  in  the  last  edition  of  the 
"  Encyclopedia  Britannica."  * 

If  this  definition  be  correct,  money  must  be  wealth.  A  debt, 
being  simply  wealth  due  from  another,  can  only  be  finally  dis- 
charged by  the  payment  of  the  wealth  due,  or  its  equivalent  in 
some  other  form  of  wealth.  Obviously,  nothing  but  wealth  can 
economically  cancel  an  obligation  to  deliver  wealth.  If  money 
is  wealth,  then  every  increase  of  money  must  be  just  so  much 
actual  addition  to  the  aggregate  wealth  of  the  community, — a 
notion  which  is  too  absurd  to  need  refuting.  Yet  it  is  exactly 
because,  in  one  way  or  another,  money  has  been  regarded  as 
wealth,  or  capital,  that  so  many  schemes  have  been  invented  for 
enriching  society  by  increasing  the  value  of  money. 

1  "  Money,  Trade,  and  Industry,"  p.  iv. 
1  Vol.  xiv.,  p.  720. 


MONEY  NOT  WEALTH.  151 

In  considering  the  question  whether  or  not  money  is  wealth, 
we  must  be  careful  not  to  confound  the  idea  of  money  with  the 
material  of  which  it  is  made.  If  money  is  wealth,  it  must  neces- 
sarily contain  the  equivalent  in  wealth  of  that  for  which  it  will 
exchange.  This  we  know  is  frequently  not  the  case.  When 
sheep,  or  cattle,  or  corn  were  used  as  money,  or  when  money  is 
made  of  gold  or  silver  of  full  weight  and  standard  fineness,  this 
may  be  true,  but  when  it  is  made  from  almost  any  other  sub- 
stance this  is  not  true.  When  a  gold  dollar  of  full  weight  and 
fineness  is  exchanged  for  a  given  amount  of  cloth,  furniture,  or 
other  commodities,  property  in  the  dollar  is  the  economic  equiv- 
alent of  the  commodity.  But  when  a  hundred  bronze  pennies 
are  exchanged  for  the  same  amount  of  commodities,  an  equivalent 
in  property  is  not  given  because  the  value  of  the  wealth  in  the 
pennies  is  not  as  great  as  that  in  the  commodities.  And  when  a 
dollar  bank-note  is  given  for  a  gold  dollar  or  its  equivalent  in 
any  other  commodity,  the  receiver  of  the  note  does  not  get  the 
equivalent  in  wealth  of  one  per  cent,  of  what  he  gave.  But,  as 
money,  he  received  as  much  in  the  paper  bank-note,  or  in  the 
bronze  pennies,  as  in  the  gold  or  silver  dollar.  Indeed,  if  the 
pennies,  or  bank-notes,  were  regarded  simply  as  wealth,  they 
never  would  be  accepted  in  exchange  for  the  commodities,  or  for 
the  gold.  It  is  only  as  money  that  they  are  ever  so  accepted. 
The  reason  for  this  is  that,  as  money,  the  notes  and  pennies  were 
the  equivalent  of  the  gold,  silver,  or  commodities,  but,  as  wealth, 
they  were  not.  Obviously,  therefore,  money  and  wealth  are  not 
identical.  Wealth  may  be  made  into  money,  but  money  per  se  is 
not  wealth. 

If  we  examine  a  few  transactions  in  wrjich  money  is  employed, 
the  difference  between  wealth  and  money,  and  the  functions  that 
they  fill,  will  be  more  easily  discerned.  For  example,  take  a 
transaction  between  the  producers  of  apples  and  shoes.  The 
shoemaker  desires  a  barrel  of  apples  and  the  farmer  desires  a 
pair  of  shoes.  When  the  farmer  delivers  the  apples  to  the  shoe- 
maker the  latter  is  in  the  farmer's  debt,  say  $2.00.  When  the 
shoemaker  delivers  the  shoes,  the  debt  is  finally  cancelled.  But 
suppose  the  shoemaker  wants  two  barrels  of  apples,  and  the 
farmer  wants  only  one  pair  of  shoes  ;  when  the  apples  and  the 
shoes  are  both  delivered,  a  balance,  equivalent  to  one  barrel  of 


152  MONEY  EVIDENCE   OF  CREDIT. 

apples,  will  remain  to  the  credit  of  the  farmer.  The  shoemaker 
offers  him  a  second  pair  of  shoes,  but  these  he  declines,  having 
no  use  for  them,  or  having  a  stronger  desire  for  something  else. 
Since  the  shoemaker  wants  the  apples  and  has  no  other  com- 
modity to  offer  in  exchange  that  is  acceptable  to  the  farmer,  in 
order  to  balance  the  transaction,  he  gives  him  $2.00  in  money. 
For  our  purpose  it  does  not  matter  what  the  money  is  made  of, 
so  long  as  the  farmer  will  accept  it.  This  transaction  represents 
myriads  that  take  place  every  day.  Here  the  farmer  delivered 
two  barrels  of  apples,  for  one  of  which  he  received  an  equivalent 
in  a  pair  of  shoes,  for  the  other  he  received  $2.00  in  money. 
Now  what  position  did  the  money  occupy  in  this  transaction  ? 
Did  it  figure  as  wealth  ?  Was  it  accepted  by  the  farmer  as  an 
equivalent  for  the  second  barrel  of  apples  in  the  same  sense  that 
the  shoes  were  accepted  for  the  first  ?  Nothing  of  the  kind. 
There  is  no  way  in  which  the  farmer  can  consume  the  $2.00  in 
the  gratification  of  any  of  his  wants  or  desires,  physical  or  social. 
It  is  absolutely  of  no  use  to  him  except  as  he  can  exchange  it  for 
wealth  or  service.  It  was  only  on  the  assumption  that  others 
would  receive  it  from  him  in  exchange  for  an  amount  of  wealth 
equivalent  to  what  he  gave  the  shoemaker  for  it,  that  he  ever 
consented  to  take  it  at  all. 

It  is  very  clear  then  that  the  farmer  received  the  money  in  lieu 
of  wealth.  In  the  case  of  the  first  barrel  of  apples,  where  an  ex- 
change of  wealth  actually  took  place,  no  money  was  required. 
It  was  only  when  the  shoemaker  did  not  give  wealth  for  the 
apples  that  he  had  to  give  money.  In  short,  the  money  was 
simply  a  substitute  for  wealth  ;  an  evidence  that  an  equivalent 
had  not  been  delivered.  Therefore,  instead  of  the  $2.00  having 
been  the  final  settlement  of  the  debt  to  the  farmer,  it  was  exactly 
the  reverse.  It  was  simply  the  evidence  that  the  debt  had  not 
been  finally  settled. 

The  same  is  true  of  labor.  When  the  laborer  works  a  day 
and  receives  $2.00  for  it,  he  has  not  received  the  equivalent  of 
his  service  in  wealth  ;  but  only  that  by  which  he  can  obtain 
wealth, — the  evidence  that  he  has  rendered  the  services  for 
which  he  has  not  yet  received  an  equivalent. 

It  may  be  said  that  if  the  money  given  to  the  farmer  for  his 
apples,  or  to  the  laborer  for  his  day's  service  had  been  gold,  the 


DEFINITION  OF  MONEY.  1 53 

debt  would  have  been  finally  cancelled.  That  would  be  correct, 
but  the  debt  in  that  case  would  not  be  cancelled  by  the  money, 
but  by  the  gold  of  which  the  money  was  .made — which  is  quite 
different.  Gold  is  property,  or  wealth,  just  as  much  as  shoes, 
wheat,  or  any  other  product,  and  therefore  it  cancels  debt.  A 
given  quantity  of  silver,  iron,  tin,,  copper,  leather,  or  any  other 
product  of  the  same  value,  would  equally  cancel  debt.  The 
only  difference  between  receiving  gold,  and  other  property  for 
which  one  has  no  immediate  use,  is  in  its  convenience  for  being 
handled,  the  general  knowledge  of  its  value,  and  the  uniform 
willingness  of  others  to  accept  it.  An  ounce  of  gold  in  bullion 
will  cancel  a  debt  just  as  effectively  as  an  ounce  of  gold  in  coin. 
But  when  gold  is  used  for  money,  so  far  as  the  money  function 
is  concerned,  it  is  accepted  solely  with  the  view  to  being  subse- 
quently exchanged  for  other  commodities.  It  is  only  because  it 
will  be  so  accepted  that  people  will  give  their  commodities  for  it. 
Were  this  otherwise,  the  farmer  would  have  taken  another  pair  of 
shoes  in  preference  to  two  gold  dollars  for  his  second  barrel  of 
apples,  for,  while  he  did  not  need  the  shoes,  he  could  probably 
have  utilized  them  sooner  than  he  could  the  gold  in  any  other 
way  than  exchanging  it  for  other  things. 

So  long  as  wealth  can  be  directly  exchanged  in  convenient 
quantities,  no  medium  is  required.  It  is  only  when  we  desire  a 
commodity  and  have  not  an  acceptable  article  in  convenient 
quantities  to  give  in  exchange  for  it,  that  money  is  of  any  ser- 
vice. Thus,  by  introducing  the  element  of  credit — of  which 
money  became  the  circulating  evidence — the  farmer  and  the 
shoemaker  were  greatly  assisted  in  obtaining  what  they  most 
desired.  In  other  words,  it  made  an  indirect  complex  process  of 
exchange  possible  by  substituting  an  accepted  token  of  obligation 
for  present  payment  of  debt. 

Money,  then,  may  really  be  defined  as  :  a  title  to  wealth  not 
delivered  ;  as  the  medium  through  which  the  most  indirect  and 
economic  exchanges  are  facilitated  by  giving  currency  to  credit 
and  substituting  obligation  for  present  payment  in  economic 
transactions. 

SECTION  II. —  The  Economic  Functions  of  Money. 
In  order  to  constitute  an  efficient  instrument  for  facilitating 
economic  exchange,  through  a  series  of  incomplete  transactions 


154  THE  FUNCTION  OF  MONEY. 

giving  currency  to  credit,  money  must  be  capable  of  filling  at 
least  two  functions.  It  must  supply  :  (i)  A  standard  or  de- 
nominator of  value  ;  (2)  A  convenient  medium  for  circulating 
obligations  which  will  be  uniformly  accepted. 

Since  value  is  the  ratio  in  which  specific  quantities  of  wealth 
and  service  will  exchange  for  each  other  as  economic  equiva- 
lents ;  for  money  to  be  a  measure  of  value,  it  must  have  relation 
to  a  specific  quantity  of  a  special  kind  of  some  particular  com- 
modity. Upon  the  same  principle  that  things  which  are  equal  to 
the  same  thing  are  equal  to  each  other,  the  value  of  any  given 
commodity  will  constitute  the  measure  of  value  for  all  commodi- 
ties. Whatever  therefore  will  correctly  indicate  the  value  of  a 
definite  quantity  of  a  given  commodity  of  specific  quality,  and 
will  be  uniformly  accepted  at  par  in  exchange  for  commodities 
and  service,  will  fulfil  all  the  functions  of  money. 

Money,  per  se,  is  not  a  physical  quantity,  but  only  a  mental 
measure  of  the  exchange  relation  of  quantities.  Its  economic 
function  is  to  furnish  a  standard  by  which  the  value  of  different 
quantities  of  wealth  and  service  can  be  measured  and  compared  ; 
thus  facilitating  exchange  and  the  mobility  of  wealth,  by  enabling 
credit  to  be  substituted  for  barter  without  violating  equity  in  the 
final  fulfilment  of  obligation. 

Nor  has  the  community  any  interest  in  money  being  cheap  as 
is  commonly  assumed.  The  principal  object  in  all  economic 
transactions  is  to  obtain  wealth,  and  the  process  whether  simple 
or  complex,  always  involves  the  giving  of  service.  Service  being 
the  human,  and  wealth  the  nature,  side  of  all  economic  movement, 
it  follows  that  the  community  is  wholly  interested  in  the  value  of 
wealth  falling  and  that  of  service  rising  ;  and  were  money  wealth, 
the  public  would  be  equally  interested  in  having  its  value  dimin- 
ished, but  it  is  not.  No  class  in  the  community,  except  mere 
money  speculators,  can  have  any  interest  in  promoting  either  a 
rise  or  fall  in  the  value  of  money. 

Since  wealth  is  cheap  or  dear  only  as  it  will  exchange  for 
a  large  or  small  quantity  of  service,  nothing  can  cheapen  wealth 
which  does  not  reduce  its  value  as  compared  with  that  of  labor. 
Now  this  is  precisely  what  a  change  in  the  value  of  money  cannot 
accomplish.  Money  being  merely  the  general  denominator  of 
value,  to  which  the  value  of  all  other  things  is  referred,  any 


EVILS  OF  FLUCTUATION.  155 

change  in  its  value  would  affect  every  thing  else  equally.  To 
assume  that  the  relative  value  of  one  article  could  be  altered  by 
a  change  which  equally  affects  all,  is  to  assume  that  things  which 
are  equal  to  the  same  thing  are  not  equal  to  each  other.  For 
example,  if  there  should  be  a  fall  of  ten  per  cent,  in  the  value  of 
money,  the  effect  would  be  a  rise  in  the  value  of  commodities 
and  all  who  own  commodities  would  receive  ten  per  cent,  more 
money  for  the  same  quantity,  but  this  would  be  equally  true 
of  labor.  For  the  same  reason  that  ten  per  cent,  more  money 
would  be  received  for  a  bushel  of  wheat,  or  a  suit  of  clothes,  ten 
per  cent,  more  money  would  have  to  be  given  for  a  day's  work. 
The  necessary  consequence  of  such  a  change  would  be  that, 
while  the  employer  received  more  for  his  goods,  he  would  have  to 
give  more  for  his  labor  and  raw  material  ;  and  conversely,  all  the 
laborer  received  as  increased  wages  he  would  have  to  pay  in 
higher  prices,  and  the  amount  of  wealth  obtained  for  a  day's 
service  would  remain  absolutely  unchanged.  The  relative  value 
of  wealth  and  service  thus  remaining  the  same,  the  only  result  of 
the  change  would  be  that  more  money  would  be  used  in  each 
transaction, — for  which  nobody  would  be  the  gainer. 

If,  however,  this  change  should  occur  suddenly,  it  would  cause 
a  temporary  disturbance  in  economic  relations.  All  who  had 
contracted  debts  would  gain  ten  per  cent.,  because  money  would 
be  worth  ten  per  cent,  less  than  when  their  obligations  were  con- 
tracted. But  this  gain  by  the  debtor  class  means  just  ten  per 
cent,  loss  by  the  creditor  class  ;  and  this  would  only  apply  to 
previously  existing  contracts  ;  all  future  transactions  would  be 
entirely  unaffected  by  the  change,  because  the  new  obligations 
would  be  assumed  on  the  basis  of  the  new  value.  Thus,  what- 
ever gain  would  result  from  such  a  change  in  the  value  of  money 
would  be  of  the  most  uneconomic  character  :  like  robbery,  it 
would  simply  enable  one  to  gain  by  the  loss  of  another.  More- 
over, such  uneconomic  changes  in  the  value  of  money  involve 
serious  disturbances  in  business  relations,  and  consequently 
an  economic  loss  to  the  whole  community. 

It  thus  appears  that  society  has  nothing  to  gain,  but  much  to 
lose,  by  fluctuations  in  the  value  of  money. 

Clearly,  then,  while  it  is  of  vital  interest  to  the  industrial  and 
social  welfare  of  the  community  that  the  value  of  wealth  should 


156  THE    VALUE   OF  MONEY. 

fall,  and  the  value  of  service  should  rise  as  rapidly  as  possible,  it 
is  scarcely  less  important  that  the  value  of  money  should  change 
as  little  as  possible.  The  efficiency  of  money  in  economics,  like 
that  of  weights  and  measures  in  business,  depends  upon  the  sta- 
bility of  its  character  and  the  convenience  of  its  form.  Therefore 
the  important  question  to  settle  is  not  how  to  make  money  cheap 
or  abundant,  but,  how  to  minimize  the  variations  in  its  value  and 
maximize  its  circulating  convenience. 

SECTION  III. —  The  Value  of  Money. 

In  considering  the  value  of  money  two  things  should  ever  be 
borne  in  mind,  namely,  that  value,  is  simply  the  ratio  of  exchange, 
and  that  money  is  the  accepted  standard  for  measuring  this  ratio. 
No  matter,  therefore,  of  what  money  is  made,  or  even  if  it  were 
never  reduced  to  material  form,  but  simply  consisted  of  verbal 
expression  passed  from  person  to  person,  it  must  necessarily 
relate  to  some  definite  quantity  of  one  or  more  of  the  commodi- 
ties subject  to  exchange.  Otherwise  the  expression,  penny,  shil- 
ling, pound,  cent,  dollar,  etc.,  would  convey  no  definite  idea  to 
either  buyer  or  seller. 

Two  questions  here  arise  :  (i)  Is  it  essential  that  money  be 
made  of  the  commodity  it  represents  ?  (2)  Would  a  multiple 
unit  form  a  more  invariable  basis  for  the  value  of  money  than  a 
unit  of  a  single  commodity  whose  value  is  least  variable  ? 

(i)  Whether  or  not  money  shall  be  made  of  the  commodity  it 
represents  and  contain  property  to  the  full  amount  of  its  face 
value  depends  upon  the  state  of  civilization.  In  a  state  of  society 
where  commercial  and  social  integrity  are  so  high  that  a  promise 
will  never  be  violated,  money  can  be  purely  representative  ;  it 
only  needs  to  have  sufficient  material  in  it  to  convey  the  evidence 
of  an  expressed  promise,  but  in  a  state  of  society  where  the  moral 
character  is  not  sufficiently  developed  to  make  the  written  word 
the  highest  bond,  it  becomes  necessary  to  have  the  promise 
secured  by  property  in  the  money.  In  other  words,  just  in  pro- 
portion as  the  security  of  the  fulfilment  of  obligation  is  lacking 
in  the  moral  character  of  the  community,  it  has  to  be  furnished 
in  the  material,  or  property-character,  of  its  money.  And  con- 
versely, as  the  moral  character  of  the  community  rises,  the 
property-character  of  the  money  departs.  Accordingly  in  the 


ESSENTIAL  ATTRIBUTES  OF  MONEY.  157 

lowest  stages  of  civilization  we  find  money  entirely  composed  of 
property,  and,  as  civilization  advances,  of  token-money  and 
purely  representative-money  (written  or  printed  obligation). 
Furthermore,  so  long  as  property-money  is  needed  in  the  trans- 
actions of  any  portion  of  the  community,  it  must  be  the  basis  of 
the  transactions  of  all,  because,  unless  the  money  used  by  the 
highest  is  such  as  to  command  the  confidence  of  the  lowest, 
commercial  intercourse  would  be  impossible.  Since  no  country 
has  yet  risen  above  the  necessity  of  using  property  money  in 
some  portion  of  its  exchanges,  and  many  countries  still  need  it 
for  the  greater  part  of  their  transactions,  some  portion  of  the 
money  of  every  country  must  continue  to  be  made  of  the  com- 
modity which  it  represents.  And  conversely,  the  commodity  of 
which  the  property-money  is  made  must  be  that  upon  which  all 
the  pure,  or  representative,  money  is  based — that  is  to  say,  the 
value  of  a  given  unit  of  that  product  must  be  the  standard  by 
which  the  value  of  all  other  commodities  is  measured  when  re- 
ferred to  in  terms  of  money. 

Therefore,  in  selecting  the  commodity,  or  commodities,  which 
would  best  serve  as  property-  or  barter-money,  several  questions 
should  be  considered  in  addition  to  the  stability  of  its  value,  (i) 
It  must  possess  utility — that  is,  it  must  be  a  commodity  in  itself, 
generally  desirable  for  the  purposes  of  consumption,  entirely 
apart  from  its  use  as  money.  (2)  In  order  to  be  a  generally 
acceptable  instrument  of  exchange  it  must  be  easily  transferred, 
in  which  case  it  must  possess  the  maximum  value  in  the  mini- 
mum quantity.  (3)  It  must  be  a  commodity  whose  form  and 
qualities  have  the  maximum  durability,  so  that  its  value  will 
not  deteriorate.  (4)  It  should  be  of  uniform  quality,  so  that 
every  unit  of  it  will  be  equal  to  every  other  unit.  (5)  It  should 
be  a  commodity  whose  value  is  subject  to  the  minimum  vari- 
ation. 

While  almost  any  commodity  would  serve  as  a  unit  of  measure- 
ment and  a  basis  of  value  which  pure  money  could  represent, 
very  few  commodities  possess  the  above  qualities  in  the  degree 
necessary  to  constitute  them  a  good  circulating  medium  as  prop- 
erty-money. Almost  every  commodity  has  been  employed  for 
this  purpose,  in  some  stage  of  civilization,  but  experience  has 
shown  that  if  barter-  or  property-money  must  be  employed,  the 


158  THE  DOUBLE   STANDARD. 

precious  metals,  particularly  gold  and  silver,  are  best  suited  to  fill 
that  function. 

It  is  commonly  held  that,  in  addition  to  its  other  advantageous 
qualities,  the  value  of  gold  is  less  liable  to  variation  than  that  of 
any  other  commodity.  Whether  this  claim  can  be  fully  sustained 
or  not,  it  is  well  known  that  the  vahie  of  gold  is  subject  to  con- 
siderable fluctuation.  Even  if  the  value  of  gold  were  less  firm 
than  that  of  some  other  commodities,  its  superiority  for  the  pur- 
poses of  money  in  so  many  other  respects  would  still  make  it 
preferable  to  any  other  commodity.  The  question  arises,  there- 
fore, would  not  the  aggregate  value  of  a  large  number  of  units  of 
products  form  a  more  invariable  standard  of  value  than  the  unit 
of  a  single  commodity  like  gold  ? 

(2)  It  has  been  frequently  contended  by  able  writers  that  the 
double  standard  of  silver  and  gold  tends  to  form  a  less  variable 
value  than  could  be  obtained  by  the  use  of  either  one  alone.  It 
is  claimed  that  the  two  exercise  what  Wolowski  calls  compen- 
satory action.  This  is  brought  about,  they  say,  by  the  fact  that 
if  either  silver  or  gold  falls  in  value  there  at  once  arises  a  ten- 
dency to  transport  the  cheaper  metal  to  the  point  where  it  is 
most  needed,  and  vice  versa,  thus  tending  to  establish  an  approxi- 
mate equilibrium  between  the  two  metals,  and  a  less  net  variation 
in  the  value  of  both.  There  may  be  some  strength  to  this  claim, 
but  it  has  not  yet  been  established  by  any  extensive  experience. 

It  has  been  suggested  by  some  writers  that  a  more  invariable 
standard  of  value  could  be  obtained  by  taking  a  given  quantity 
of  a  large  number  of  staple  commodities,  and  making  their  aggre- 
gate value  the  standard  upon  which  the  unit  of  money  should  be 
based.  This  idea  was  first  presented  in  England  by  Joseph 
Lowe,  in  a  work,  "  The  Present  State  of  England  in  Regard  to 
Agriculture,  Trade,  and  Finance  "  (1822)  ;  and  again  in  1833  by 
Mr.  G.  Poulett  Scrope,  and  in  1875  by  Stanley  Jevons,  in  his 
work  on  "  Money  and  the  Mechanism  of  Exchange."  The  idea  in 
this  proposition  is  that  while  the  value  of  each  of  a  hundred  dif- 
ferent articles  might  vary  more  than  gold,  their  variation  would 
frequently  be  in  different  directions  and  offset  each  other  ;  and, 
in  the  general  movement  of  the  value  of  the  whole  body,  much  of 
the  fluctuation  of  any  particular  article  would  be  eliminated. 

This  is  seen  in  the  movement  of,  prices  during  the   present 


THE    TABULAR   STANDARD.  159 

century.  While  some  commodities  have  fallen  60  and  70  per 
cent,  in  value,  and  others  have  increased  considerably,  the  mean 
level  of  prices,  compared  with  gold,  has  only  fallen  about  14 
per  cent.,  so  that  the  general  price-level  has  probably  varied  less 
than  that  of  any  one  commodity.  If  one  commodity  is  used  as 
the  unit  of  value,  and  in  the  production  of  that  article  improved 
machinery  should  be  introduced  to  any  considerable  extent,  its 
value  would  be  greatly  reduced,  as  that  of  all  machine-made 
products  has  been.  On  the  other  hand,  if  it  is  an  article  in 
whose  production  hand-labor  is  chiefly  employed,  then  its  value 
will  rise  just  as  fast  as  wages  increase  and  civilization  advances, 
as  in  the  case  of  farm  and  garden  products.  But  if  the  price- 
level  of  a  hundred  or  more  principal  commodities,  including  both 
manufactured  and  agricultural  products,  and  the  aggregate  value 
of  a  definite  quantity  of  each  were  taken  as  the  standard  unit  of 
value,  it  is  quite  certain  that  their  value  would  be  far  more  steady 
than  if  based  upon  any  particular  one.  The  movement  of  the 
variation  in  value  would  not  only  be  more  permanent  and  grad- 
ual, thereby  avoiding  sudden  perturbations,  but  the  change  in 
value  would  represent  the  influence  of  civilization  upon  the  cost 
of  producing  wealth  in  general,  and  not  that  of  some  abnormal 
force,  like  speculation,  upon  any  particular  article  which  may 
produce  a  temporary  change  in  value  out  of  all  proportion  to 
the  general  movement.  Even  this  method  would  not  dispose  of 
the  use  of  the  precious  metals  as  money  so  long  as  property-money 
is  necessary,  but  it  would  obviate  much  of  the  business  disturb- 
ance and  loss  to  the  debtor  and  creditor  class  consequent  upon  a 
sudden  change  in  the  value  of  gold  or  silver,  because,  while  gold 
might  remain  the  nominal  denominator  of  value,  its  value  would  be 
measured  by  the  aggregate  value,  at  any  given  time,  of  the  hun- 
dred or  more  articles  of  which  the  multiple  standard  is  composed. 
For  example,  if  the  stipulated  quantity  of  the  hundred  articles 
composing  the  tabular  standard  of  value  will  exchange  for  $1,000 
in  gold  on  the  first  of  January,  1890,  and  on  the  first  of  January, 
1891,  they  will  only  command  $900  in  gold,  it  would  be  evident 
that  the  gold  had  risen  in  value  10  per  cent,  as  compared  with 
the  articles  in  the  tabular  standard.  Therefore,  all  obligations, 
whether  in  the  form  of  mortgages,  borrowed  money,  or  general 
purchases  contracted  on  the  first  of  January,  1890,  could  be  can- 


l6o  REQUISITES  OF  TABULAR  STANDARD. 

celled  on  the  first  of  January,  1891,  with  10  per  cent,  less  gold 
than  at  the  time  of  the  agreement.  But,  by  receiving  10  per  cent, 
less  gold,  the  creditor  would  receive  the  equivalent  of  exactly  the 
same  amount  of  the  various  commodities  as  if  they  had  been  paid 
in  gold  when  the  contract  was  made.  By  this  means  the  debtor 
would  avoid  the  loss  consequent  upon  the  rise  in  the  value  of  gold 
during  the  year.  Thus  whether  a  debt  was  paid  by  the  same 
amount  of  gold  or  not,  it  would  always  be  cancelled  by  an  amount 
of  gold  equivalent  in  value  to  the  same  quantity  of  general  com- 
modities that  the  debt  originally  represented.  Therefore,  whatever 
effect  the  variation  in  the  value  of  gold  had  upon  the  quantity  of 
money  received,  it  would  have  practically  none  upon  the  quan- 
tity of  wealth  received.  By  thus  making  the  value  of  money 
depend  upon  that  of  the  general  body  of  staple  commodities, 
it  would,  at  least,  remove  it  further  from  the  influence  of  mere 
capricious  speculation  and  confine  its  fluctuations  to  the  normal 
movement  in  the  general  value  of  wealth. 

The  principle  involved  in  a  tabular  standard  is  unquestionably 
sound.  That  it  would  tend  to  minimize  the  fluctuations  in  the 
value  of  money  is  as  certain  as  that  the  movement  of  large  bodies 
is  more  steady  than  that  of  small  ones.  It  is  simply  the  applica- 
tion of  the  law  of  averages  to  the  unit  of  value,  which  has  been  so 
completely  demonstrated  in  the  sphere  of  insurance.  Like  all 
instruments  of  increased  complexity,  however,  it  presents  some 
difficulties  in  application,  on  its  first  introduction.  In  the  first 
place,  it  would  necessitate  the  extensive  collection  of  exact  data 
regarding  the  prices  of  commodities,  particularly  those  included 
in  the  tabular  standard.  It  would  require  a  well-defined  system 
of  computing  the  purchasing  capacity  of  gold  as  compared  with  a 
given  unit  of  these  commodities  ;  and  it  would  also  be  necessary 
that  the  results,  thus  scientifically  established,  should  be  authori- 
tatively published  every  week,  or  oftener.  Perhaps  the  most  diffi- 
cult feature  connected  with  the  scientific  application  of  this  prin- 
ciple to  the  value  of  money,  is  the  method  by  which  the  actual 
price-level  of  a  given  unit  of  these  commodities  shall  be  arrived 
at.  This  subject  has  already  occupied  the  attention  of  statisticians 
for  a  considerable  time,  entirely  independent  of  the  idea  of  its 
use  in  the  construction  of  a  tabular  standard  for  the  value  of 
money.  Soetbeer,  Jevons,  Laspeyre,  Newmarch,  and  Mulhall 


SCIENTIFIC  PRICE-LEVEL.  l6l 

have  all  endeavored,  with  varying  success,  to  construct  a  scien- 
tific system  for  ascertaining  the  general  price-level  of  all  com- 
modities. All  but  Mulhall  have  adopted  the  index-number 
method  ;  he  has  adopted  the  "  volume-of-trade  "  method,  which, 
though  more  laborious,  is  doubtless  the  more  accurate  system. 
That  a  scientific  method  will  be  established  for  ascertaining  the 
exact  price-level  of  any  given  number  of  commodities  can  hardly 
be  doubted  ;  and  that  it  should  be  established  is  of  the  utmost 
importance  to  economic  science.  Indeed,  what  the  science  most 
lacks  to-day  is  exact  knowledge  of  economic  data.  Therefore 
the  idea  of  the  tabular-standard  theory  should  not  be  rejected 
merely  because  of  the  difficulties  of  its  practical  application.  On 
the  contrary,  if  it  is  sound  in  principle,  it  should  serve  as  an  ad- 
ditional incentive  for  establishing  a  scientific  system  of  ascertain- 
ing the  actual  general  price-level  of  commodities,  without  which 
the  knowledge  of  economic  data  will  become  less  exact  as  indus- 
trial phenomena  increases  in  volume  and  complexity. 

It  will  be  observed,  however,  that  the  only  object  in  adopting  a 
single,  double,  or  tabular,  monetary  standard,  is  simply  to  obtain 
the  most  invariable  basis  for  the  value  of  money.  Consequently 
the  only  question  of  economic  importance  connected  with  the 
whole  subject  of  money  is,  how  to  maximize  the  convenience  of 
its  form,  and  minimize  the  variation  in  its  value. 

SECTION  IV. —  The  Depreciation  of  Money. 

The  depreciation  of  money  and  a  fall  in  its  value  are  distinct 
phenomena,  and  produced  by  very  different  causes,  although  they 
have  the  same  effect  upon  its  purchasing  capacity.  The  differ- 
ence may  be  stated  thus  :  A  fall  in  the  value  of  money  means 
that  the  value  of  a  particular  class  of  property — gold,  silver,  or 
the  like, — upon  which  it  is  based,  has  undergone  a  change.  The 
depreciation  of  money  means  that  it  does  not  represent  the 
amount  of  property  which  it  professes  to.  The  former  is  an 
economic  variation  ;  the  latter  an  uneconomic  diminution.  For 
instance,  if  gold  and  silver  are  both  used  equally  as  money,  and 
their  value  as  bullion  is  as  i  to  15,  they  will  circulate  as  money  in 
just  that  ratio,  and  every  gold  coin,  of  whatever  denomination, 
will  be  equal  in  value  to  a  silver  coin  of  fifteen  times  its  own 
weight. 


1 62  DEPRECIATION  OF  MONEY. 

If,  however,  by  lessening  the  cost  of  production,  the  value  of 
silver  bullion  should  fall,  so  that  seventeen  grains  were  only  equal 
to  one  of  gold,  then  the  relative  purchasing  capacity  of  the  two 
coins  would  be  as  17  to  i.  This  would  constitute  a  fall  of  T27  in 
the  value  of  the  silver  money.  But,  on  the  other  hand,  if  the 
quantity  of  pure  silver  in  the  coin  were  diminished  T\,  the  pur- 
chasing capacity  of  the  money  would  fall  to  the  ratio  of  17  to  i 
as  compared  with  gold,  exactly  as  before,  but  this  would  be  a 
depreciation  of  the  silver  money.  Although  the  alteration  in  the 
purchasing  capacity  of  the  silver  money  would  be  the  same  in 
both  cases,  the  cause  and  effect  of  that  alteration  would  be  very 
different.  In  the  former  case  the  silver  dollar,  though  diminished 
in  purchasing  power  as  compared  with  gold  and  all  other  com- 
modities, would  still  exchange  for  the  same  amount  of  the  prop- 
erty it  claimed  to  represent  (silver  bullion),  showing  that  its 
reduced  purchasing  power  was  due  to  the  fall  in  the  economic 
value  of  silver,  as  property.  But,  in  the  latter  case,  the  17 
grains  of  silver  coin  would  not  only  have  fallen  in  value  as  com- 
pared with  gold  and  all  other  commodities,  but  also  as  compared 
with  silver  bullion,  showing  that  the  change  is  not  due  to  an 
alteration  in  the  economic  value  of  any  commodity  whatever,  but 
solely  to  the  fact  that  it  pretends  to  contain  more  property  than 
it  really  does. 

Nor  is  there  any  difficulty  in  determining  which  of  these  two 
movements  has  occurred  when  a  fluctuation  in  the  purchasing 
power  of  money  takes  place.  If  it  is  a  change  in  the  economic 
value  of  money,  then  the  money  will  continue  to  exchange  at 
par  with  the  specific  quantity  of  the  particular  commodity  which 
it  represents.  If  it  is  made  of  gold  or  silver,  the  mint  price  will 
be  approximately  the  same  as  the  bullion  price  ;  and  if  it  is 
paper  currency,  whether  private  or  governmental,  it  will  exchange 
for  the  amount  of  coin  or  bullion,  or  whatever  specific  property 
its  represents,  at  its  face  value.  The  rise  of  the  bullion  price 
above  the  mint  price,  or  of  the  property  price  above  the  paper 
price,  is  infallible  evidence  of  the  depreciation  of  the  money ; 
and  the  extent  of  that  difference  correctly  indicates  the  degree  in 
which  the  depreciation  has  taken  place. 

It  should  be  observed  that  the  depreciation  of  metallic  money 
is  produced  by  a  different  cause  from  that  of  paper  money.  The 


INADEQUACY  OF  BARTER-MONEY.  163 

reason  for  this  is,  that  the  former  is  barter-,  or  property-money, 
while  the  latter  is  credit-,  or  representative-money.  Metallic  cur- 
rency is  wealth,  and  paper  currency  is  the  promise  to  deliver 
wealth  ;  consequently  the  appreciation  of  the  former  depends 
upon  the  amount  of  property  it  contains,  and  the  appreciation  of 
the  latter  upon  the  amount  of  confidence  it  can  command. 
There  can  never  be  a  depreciation  of  metallic  money  unless  there 
is  an  actual  diminution  in  the  quantity  of  property  put  into  it ;  it 
may  fall  in  value,  but  it  can  never  be  depreciated  so  long  as  there 
is  the  quantity  of  material  in  it  which  it  professes  to  contain — 
i.e.,  if  it  is  not  fraudulently  manufactured.  There  is  therefore 
no  more  difficulty  in  preventing,  than  there  is  excuse  for  pro- 
moting, the  depreciation  of  metallic  or  property-money. 

If  coin  were  the  only  money  used,  the  question  of  depreciation 
might  be  dismissed  as  being  too  simple  to  need  discussion  ;  but 
this  is  far  from  being  the  case.  Experience  has  shown  that, 
under  the  complex  conditions  of  modern  industry,  a  purely 
metallic,  or  property-currency,  is  wholly  inadequate  to  meet  the 
needs  of  the  community.  There  are  two  reasons  for  this  :  (i) 
There  is  probably  not  enough  gold  and  silver  coin  in  the  whole 
world  to  do  the  business  of  one  or  two  of  the  most  advanced 
countries.  (2)  If  there  were,  its  cumbersome  inconvenience 
would  render  its  use  impossible  in  the  greater  portion  of  modern, 
commercial  transactions. 

To  be  forced  to  actually  transfer  "  thirty-six  cart  loads  of 
silver,"  or  its  equivalent  in  gold,  in  order  to  transact  a  business 
of  ^400,000 — as  in  the  case  of  the  amount  paid  for  the  delivery 
of  Charles  I.  to  the  parliamentary  party — would  annihilate  the 
major  part  of  the  commerce  of  Christendom.  The  utter  in- 
adequacy of  metallic,  or  property-money,  for  the  requirements  of 
modern  industry,  is  demonstrated  by  the  fact  that  only  about 
.81  of  one  per  cent,  of  the  business  in  this  country  is  now  done 
with  coin, — 99.19  of  the  payments  being  made  in  paper  money, 
— 95.13  per  cent,  of  which  is  in  personal  checks,  drafts,  etc. 

Many  writers  on  this  subject  appear  to  regard  coin  as  the  only 
form  of  real  money.  Hence,  when  distinguishing  between  metallic 
and  paper  money  they  generally  speak  of  the  former  as  money 
and  the  latter  as  currency.  Even  Jevons  and  MacLeod  do  not 
entirely  escape  this  notion.  In  discussing  this  point  the  latter 


164  BASIS  OF  PAPER   CURRENCY. 

says  :  "  It  would  therefore  be  currency,  but  it  would  not  be  money, 
because  it  has  no  intrinsic  value,"  ' — the  evident  idea  being  that 
currency  is  only  money  in  proportion  as  it  contains  wealth. 

The  simple  fact  is  that  all  money  is  currency.  Its  currency  or 
circulation  may,  under  some  conditions,  depend  upon  the  material 
of  which  it  is  made,  but  it  is  money  by  virtue  of  its  being  cur- 
rency and  not  because  of  the  property  which  it  contains.  The 
difference  between  a  metallic  and  a  paper  currency  is  that  the 
former  is  both  property  and  money,  and  the  latter  is  simply 
money.  Ricardo  has  well  said  :  "  A  currency  is  in  its  most  per- 
fect state  when  it  consists  wholly  of  paper."  *  Indeed,  the  more 
perfect  a  currency  is  as  property,  the  less  perfect  it  is  as  money. 
Coin  of  full  weight  and  fineness,  instead  of  being  the  only  real 
money,  is  the  only  kind  of  currency  which  does  not  fill  all  the 
functions  of  money, — because  it  is  not  an  instrument  of  credit 
and  does  not  give  currency  to  transferable  obligation,  which  is 
the  most  important  of  all  features  of  money.  To  the  extent  that 
money  does  not  transfer  credit,  it  fails  to  promote  indirect  ex- 
changes, and  reduces  all  transaction  to  literal  barter.  Paper 
money,  being  simply  the  evidence  of  credit  and  not  property 
per  se,  instead  of  finally  cancelling  debts,  as  coin  does,  only 
transfers  obligation.  Its  acceptance  and  circulation  therefore 
depend  upon  the  degree  of  confidence  it  inspires  in  the  actual 
fulfilment  of  the  obligation  it  represents.  Whatever  impairs  the 
confidence  and  destroys  the  credit,  necessarily  depreciates  the 
money  representing  it.  Clearly  then  the  only  way  to  prevent  the 
depreciation  of  paper  money  is  to  sustain  the  confidence  in  the 
promise  it  conveys.  Nothing  can  sustain  the  confidence  in  a 
promise  but  fulfilling  the  obligation  whenever  it  is  required.  To 
the  extent  that  this  is  inconveniently  deferred  is  the  confidence 
in  the  promise  impaired. 

In  order  that  confidence  in  this  promise  may  be  complete  and 
unshaken,  it  is  necessary  that  those  who  accept  the  money  know 
that  a  specific  amount  of  wealth  will  be  delivered  on  demand,  and 
also  exactly  of  what  this  wealth  shall  consist.  Otherwise,  the 
debtor  would  frequently  offer  what  the  creditor  did  not  want,  and 
the  creditor  demand  what  the  debtor  could  not  deliver,  and  the 

1  "  Elements  of  Political  Economy,"  p.  35. 

*  "  Principles  of  Political  Economy  and  Taxation,"  p.  218. 


NECESSITY  OF  GOLD  AND   SILVER,  165 

confidence  would  constantly  fluctuate  according  to  the  desira- 
bility of  the  things  offered  and  received. 

What  shall  this  wealth  be,  is  the  next  question.  Whatever  may 
be  the  commodity  selected  for  this  purpose,  it  must  be  that  which 
already  circulates  as  property-money  among  that  portion  of  the 
community  which  will  not  accept  paper  or  credit-money.  The 
reason  for  this  is  very  simple.  Whoever  accepts  money  in  a 
transaction  does  so  because  the  commodities  at  the  disposal  of  the 
debtor  are  such  as  he  does  not  desire.  So  long  as  the  money 
will  be  accepted  by  those  who  possess  the  commodities,  it  is  un- 
important what  commodity  it  represents  ;  but  when  the  pur- 
chaser desires  an  article  which  those  who  have  confidence  in  his 
money  do  not  possess,  and  those  who  do  possess  it  will  not 
accept  his  money,  it  is  necessary  that  he  should  be  able  to 
demand  from  those  who  issue  the  promise  a  specific  kind  of 
property,  which  those  who  declined  to  receive  his  credit-money 
will  accept.  Otherwise  his  commercial  dealings  will  be  restricted 
to  the  limited  area  in  which  his  money  freely  circulates.  This 
would  necessarily  impair  his  confidence  in  it  as  an  instrument  of 
exchange.  So  long,  therefore,  as  we  have  commercial  intercourse 
with  any  people  who  continue  to  insist  upon  property-money, 
all  paper,  or  credit-money,  must  be  a  promise  to  deliver  upon 
demand  a  specific  quantity  of  the  commodity  of  which  their  prop- 
erty money  is  made — be  that  whatever  it  may.  In  no  other  way 
can  the  depreciation  of  paper  money  be  prevented. 

Wherever  property-money  prevails  to-day — and  it  is  used  more 
or  less  in  all  commercial  countries, — it  is  made  of  gold  or  silver. 
Hence  these  are  the  commodities  upon  which  all  credit,  or  paper- 
money,  must  be  based.  There  are  those  who  think  that  any  other 
commodity  would  answer  the  purpose  just  as  well, — and  some, 
indeed,  who  even  insist  that  the  aggregate  property  of  the  com- 
munity would  be  still  better.  Those  who  urge  these  views,  how- 
ever, overlook  the  fact  that  but  a  very  small  portion  of  the  race 
have  entirely  dispensed  with  the  use  of  property-money  ;  and  un- 
less credit-money  is  redeemable  in  some  specific  commodity  which 
is  uniformly  acceptable  to  those  who  insist  upon  property-money, 
commercial  intercourse,  with  by  far  the  greater  portion  of  the 
human  race,  would  be  practically  cut  off.  This  would  not  only  in- 
volve the  destruction  of  commerce,  but  the  arrest  of  civilization. 


1 66  METALLIC  MONEY  NECESSSARY. 

It  should  always  be  remembered  that  the  fundamental  princi- 
ple underlying  economic  and  social  law  is,  that  all  institutions 
are  based  upon  and  adapted  to  the  character  of  the  people,  be- 
coming less  arbitrary  and  restrictive  as  the  characters  of  the  social 
units  rise  in  moral  strength  and  social  integrity,  and  also  that  the 
barbaric  element  in  institutions  and  laws  is  always  retained  for 
the  least  advanced.  Thus,  all  criminal  and  restrictive  laws  are 
not  made  to  govern  the  most  orderly  but  the  most  unruly  element 
in  the  community.  This  is  why  the  most  moral  and  advanced 
portion  of  a  community  has  to  be  subject  to  the  despotism  neces- 
sary to  control  the  most  disorderly  classes.  The  same  principle 
operates  with  equal  force  in  the  sphere  of  money.  Property- 
money  represents  the  barbaric  element  in  commercial  intercourse, 
only  the  most  advanced  being  capable  of  using  pure  credit-money, 
and  since  property-money  is  only  used  by  the  higher  classes  be- 
cause it  is  essential  to  their  dealing  with  the  lower,  the  commodity 
which  is  the  most  acceptable  to  those  who  insist  upon  barter- 
money  must  be  used  by  those  who  employ  credit-money. 

It  is  undoubtedly  true  that  any  other  commodity  would  serve 
as  a  basis  for  credit-money  just  as  well  as  gold  or  silver,  provided 
it  would  be  as  readily  accepted  among  those  who  insist  upon 
property-money.  The  only  reason  these  metals  are  necessary  is 
that  they  are  the  only  commodities  that  will  currently  pass  in 
payment  for  debt  where  credit-money  is  rejected  ;  and  this  fact 
makes  them  indispensable,  because,  for  the  very  reason  that  a 
redemption  of  the  promise  conveyed  by  credit-money  is  neces- 
sary to  give  it  confidence,  its  redemption  in  any  other  com- 
modity would  be  useless.  All  money,  of  whatever  it  is  made,  is 
received  in  trade  only  on  the  assumption  that  other  people  will 
take  it  on  the  same  conditions.  Since  nothing  can  fill  the  func- 
tions of  money  which  will  not  be  accepted  as  currency,  and  since 
nothing  can  sustain  a  paper  money  from  depreciation  except  the 
assurance  that  it  will  be  redeemed  in  a  commodity  acceptable  as 
currency  to  those  who  insist  upon  property-money,  and  since 
gold  and  silver  are  the  only  commodities  that  will  be  so  received, 
it  is  clear  that  these  metals  must  necessarily  constitute  the  basis 
of  all  paper  money. 

SECTION  V.—  WJto  Should  Furnish  the  Money  ? 

The  only  interest  the  community  has  in  the  supply  of  money  is 
that  it  should  be  furnished  by  those  who  can  most  completely 


INADEQUACY  OF  STATE  ACTION.  l6j 

adjust  it  to  the  necessities  of  the  people.  Can  this  duty  be  per- 
formed better  by  the  government  than  by  private  enterprise  ?  As 
explained  in  another  chapter,1  it  is  a  principle  in  society  that  the 
efficiency  of  governmental  action  diminishes  as  the  enterprise 
becomes  involved  and  complex,  requiring  quick  decisions,  expert 
judgment,  and  frequent  changes.  Consequently,  with  the  devel- 
opment of  society,  all  forms  of  industrial  and  commercial  enter- 
prises have  gradually  passed  into  the  sphere  of  individual  control 
and  responsibility.  The  same  is  true  of  money.  In  the  earlier 
stages  of  society  the  government  supplied  all  the  money.  But 
with  the  development  of  industry  and  commerce,  the  financial 
requirements  became  too  intricate  for  the  government  to  ade- 
quately supply,  and  public  or  legal  tender-money  had  to  be 
supplemented  by  private  money.  This  has  increased  with  the 
advance  of  society  until  only  about  one  per  cent,  of  the  debts  in 
this  country  are  now  paid  with  property-money,  and  less  than  five 
per  cent,  are  paid  with  legal  tender-money,  about  ninety-five  per 
cent,  of  the  business  being  transacted  with  private  money — notes, 
checks,  drafts,  etc. 

Since  personal-money  has  no  legal  backing  except  to  the  extent 
of  the  property  of  those  who  make  it,  its  utility  rests  mainly  upon 
the  confidence  that  it  can  be  exchanged  for  any  form  of  property 
desirable  or  be  converted  into  property-money  at  the  pleasure  of 
the  holder.  Therefore,  so  long  as  any  property-money  is  neces- 
sary in  the  domestic  or  foreign  transactions  of  a  nation,  the 
stability  of  the  whole  currency  rests  largely  upon  its  supply, 
however  small  the  amount  may  be.  If  the  supply  of  this  rela- 
tively small  quantity  of  property-money  were  as  completely 
adapted  to  the  needs  of  the  community  as  the  amount  of  per- 
sonal-money is  to-day,  financial  panics  wottld  be  of  very  rare 
occurrence  ;  indeed  with  proper  financial  statistics  they  might  be 
practically  avoided. 

To  supply  this  small  but  indispensable  increment  of  property- 
money  to  suit  the  varying  requirements  of  modern  society,  is  a 
duty  the  government  is  manifestly  incapable  of  performing. 
The  reason  for  this  is  easy  to  understand.  Being  a  representa- 
tive institution,  the  government  must  act  either  upon  a  general 
rule  or  according  to  specific  legislation.  And  the  more  demo- 
cratic the  government,  the  more  its  action  is  limited  by  the 
1  Part  IV.,  chapter  ii. 


1 68  HERBERT  SPENCERS    VIEW. 

popular  will  as  expressed  in  legislation.  Consequently  it  cannot 
vary  its  action  with  sufficient  promptness  and  wisdom  to  meet  the 
requirements  of  special  emergencies.  When  circumstances  arise 
making  an  increase  of  money  necessary,  there  is  no  means  of 
supplying  the  demand  until  Congress  can  be  called  together  to 
legislate  upon  it.  Before  this  can  be  accomplished  a  stringency 
or  even  a  panic  may  arise  disturbing  the  industrial  relations  of 
the  whole  country — a  fact  of  frequent  occurrence.  Moreover, 
when  Congress  is  called  upon  to  readjust  the  currency  to  the 
commercial  needs  of  the  community,  the  question  is  liable  to  be 
decided  by  political  rather  than  economic  considerations.1  On 
the  other  hand,  if  the  amount  of  money  thus  authorized  is  larger 
than  is  needed,  it  is  uselessly  stacked  away  in  the  government 
vaults  and  is  a  mere  waste  of  public  revenue.  Financial  disturb- 
ances from  these  causes  would  be  far  more  frequent  than  they 
are,  but  for  the  large  proportion  of  the  money  that  is  furnished 
by  individuals. 

Manifestly  the  remedy  for  the  evils  inevitably  connected  with 
such  an  inadequate  system  must  be  sought  in  some  method  of 
transferring  the  money-supplying  function  from  the  State  to 
private  enterprise.  Nor  is  there  any  thing  revolutionary  in  this 
proposition.  It  is  simply  obeying  the  law  of  evolution  and  trans- 
ferring the  duty  of  making  the  remaining  five  per  cent,  of  the 
money  to  those  who,  by  virtue  of  superior  fitness,  already  furnish 
about  ninety-five  per  cent,  of  it. 

It  must  not  be  assumed,  however,  that  in  taking  this  position  I 
accept  the  reasoning  of  Herbert  Spencer  in  his  claim  for  a 
"  complete  free  trade  in  currency." a  He  assumes  that  under  free 
competition  good  money  will  always  drive  bad  money  out  of  use, 
for  the. same  reason*  that,  cceteris  paribus,  a  superior  article  will 
always  be  preferred  to  an  inferior  one.  The  objection  to  this 
assumption  is  that  it  does  not  agree  with  the  facts.  The  experi- 
ence of  centuries  shows  that,  instead  of  superior  money  driving 

1  Witness  the  recent  action  of  Congress  on  the  silver  question.  The  repre- 
sentatives from  the  silver-mining  States  demanded  the  free  coinage  of  silver,  and 
for  fear  of  losing  the  political  support  of  those  States  a  silver  bill  was  passed, 
which  on  economic  grounds  would  not  have  received  the  support  of  either 
party. 

*  "  Social  Statics,"  chap.  xxix. 


THE   GRESHAM  LAW.  169 

inferior  money  from  circulation,  it  is  always  inferior  money  that 
drives  out  the  superior.1  The  reason  for  this  is  very  simple. 

Suppose  for  illustration  that  the  money  is  made  of  gold,  and 
that  there  are  in  circulation  three  kinds  of  dollars  containing 
24,  22,  and  20  grains  of  gold  respectively.  Since  the  2o-grain 
dollar  will  do  the  same  service  as  the  24-grain  dollar,  every  one 
would  gain  sixteen  per  cent,  by  melting  down  the  24-grain  dol- 
lar, it  being  worth  one  sixth  more  as  property  than  as  money. 
So  long  as  a  profit  can  be  made  by  converting  the  superior 
money  into  property,  nothing  but  the  most  absolute  despotism 
can  keep  it  in  circulation  as  money.  Thus  free  competition  in 
money  (if  more  than  one  kind  is  used)  would  produce  the 
opposite  effect  from  what  Mr.  Spencer's  laissez-faire  hypothesis 
pre-supposes.  Moreover,  if  competition  would  do  all  that  Mr. 
Spencer  assumes,  it  would  still  be  uneconomic  and  hence  unde- 
sirable for  two  reasons  :  (i)  Because  competition  necessitates  a 
plurality  of  competitors  which  implies  two  or  more  kinds  of 
money  in  circulation  at  the  same  time.  (2)  Because  competi- 
tion between  two  or  more  kinds  of  money  necessarily  disturbs 
the  confidence  in  some  portion  of  the  currency,  and  this  is  pre- 
cisely what  a  sound  monetary  system  should  not  do.  As  pointed 
out  in  the  last  section,  the  community  has  nothing  to  gain  but 
much  to  lose  by  fluctuations  in  the  value  of  money. 

There  are  three  important  things  to  be  accomplished  by  a  cor- 
rect monetary  system  :  (i)  to  secure  the  greatest  stability  and 
uniformity  of  value  to  the  money  ;  (2)  to  supply  it  in  the  most 
convenient  form  ;  (3)  to  adjust  the  quantity  to  the  needs  of  the 
community.  Before  we  are  justified  in  putting  the  entire  control 
of  the  legal-tender  money  in  the  hands  of  private  enterprise  we 
must  be  reasonably  certain  that  all  the  above  objects  can  be 
accomplished  better  by  the  individual  than  by  the  State. 

(i)  Since  the  value  of  money  is  governed  by  the  value  of  the 
commodity  of  which  it  is  made,  and  that  in  turn  depends  upon 
the  cost  of  production,  it  is  clear  that  the  individual  has  no  more 

1  The  principle  that  bad  money  drives  good  money  out  of  circulation  and  that 
good  money  never  drives  out  bad,  was  discovered  in  the  sixteenth  century  by  Sir 
Thomas  Gresham,  and  is  known  as  the  "  Gresham  Law."  This  theorem  has 
been  so  completely  verified  by  experience  that  it  is  now  accepted  by  economists 
and  financiers  as  scientifically  established. 


I/O  HOW    TO  ADJUST   THE   QUANTITY. 

power  to  increase  its  stability  than  has  the  government.  Nor 
could  its  uniformity  either  of  value  or  style  be  increased  if  made 
by  private  concerns.  On  the  contrary,  the  maximum  uniformity 
can  best  be  obtained  by  having  all  the  money  made  under  one 
management. 

(2)  Neither  is  there  any  reason  for   assuming   that  a  more 
convenient  form  of  money  could  be  furnished  by  private  enter- 
prise than  by  the  government.     The  government  will  make  the 
money  of  whatever  material  and  issue  it  in  such  form  as  the 
people  desire  ;  and  the  reasons  for  a  change  in  these  respects  occur 
so  seldom,  and  develop  so  gradually,  that  no  inconvenience  can 
result  from  having  these  points  determined  by  law.    Since  private 
enterprise  could  do  nothing  to  increase  stability  of  value   in 
money  or  its  uniformity  and  convenience,  there  is  obviously  no 
reason  for  taking  from  the  government  the  duty  of  determining 
the  material  of  which  it  should  be  made  and  the  form  in  which  it 
should  be  issued. 

(3)  To  adjust  the  quantity  of  money  to  the  needs  of  the  com- 
munity is  a  much  more   difficult  task.     The  quantity  of  legal- 
tender  money  required  in  a  highly  complex  industrial  community 
is  liable  to  great  and  sudden  variation.     A  change  in  the  ratio  of 
exports  to  imports,  an  increase  or  decrease  in  the  opening  up  of 
new  territory,  or  a  change  in  other  industrial  relations  with  peo- 
ple who  insist  upon  barter-money,  all  affect  the  quantity  of  legal- 
tender  money  required.     For  the  reasons  already  explained,  the 
government  cannot  act  with  sufficient  alertness  to  adapt  the  cur- 
rency to  these  ever  increasing  variations.     The  quick  decision, 
expert    judgment,    and    rapid   changes    required   are   precisely 
what  individual  enterprise  can  supply.     The  question  is  how  to 
transfer  to  private  enterprise  and  retain  in  the  hands  of  the  gov- 
ernment that  portion  of  the  duty  of  supplying  money  which  each 
can  perform  better  than  the  other. 

This  is  not  so  difficult  a  task  as  may  at  first  appear.  All  that 
is  necessary  is  to  have  the  money  furnished  by  private  enterprise 
in  the  same  way  that  food,  clothing,  and  other  commodities  now 
are,  with  the  exception  that  the  form  and  quality  of  the  money 
be  determined  by  law.  This  would  involve  government  control 
or  supervision  of  the  mint  and  the  printing  of  coin  certificates 
as  at  present,  the  business  and  risk  of  buying  bullion,  the  cost  of 


ADVANTAGES  OF  PRI VA  TE  EN TERPRISE.  I J I 

minting  and  distribution  being  left  to  private  enterprise.  Thus 
the  business  part  of  the  monetary  system  would  pass  over  to  the 
individual,  and  the  duty  of  protecting  the  public  interest  still  be 
reserved  to  the  government.  Under  such  conditions  the  mone- 
tary system  would  be  greatly  simplified  and  far  more  adjustable 
to  the  needs  of  the  people.  The  money  would  then  be  furnished 
purely  as  a  matter  of  business,  and  the  banker  would  sustain  the 
same  economic  relation  to  the  community  as  any  other  merchant. 
And  his  success,  likewise,  would  depend  entirely  upon  the 
efficiency  with  which  he  supplied  the  wants  of  the  people. 

Should  there  be  an  increased  demand  for  money,  it  would  not 
be  necessary  to  petition  Congress  to  pass  a  law  on  the  subject  as 
at  present.  It  would  only  be  necessary  for  the  banker  to  pur- 
chase more  bullion  and  have  it  coined  or  the  certificates  printed, 
just  as  the  shoe  merchant  would  increase  his  stock  of  shoes  if  the 
demand  should  rise.  To  get  this  bullion  would  be  easy,  as  soon 
as  the  terms  of  commerce  in  bullion  were  established  between 
bullion  producers  and  bankers.  The  bankers  would  then  be  in 
the  habit  of  ordering  bullion  from  the  miners  on  their  established 
credit,  just  as  a  man  orders  clothes  from  his  tailor.  Money  being 
especially  needed,  he  would  telegraph  an  order  to  send,  say  one 
thousand  pounds  of  bullion.  This  would  come  on  usual  terms, 
say  sixty  days,  and  could  be  coined  at  once  and  put  into  circula- 
tion, thereby  promptly  supplying  the  demand  for  money.  In  other 
words,  sound  credit  would  be  turned  into  real  money  to  suit  the 
emergency  and  the  evils  of  a  financial  panic  avoided.  The  self- 
interest  of  the  banker  would  inspire  prompt  action  in  this  re- 
gard, since  those  who  could  supply  their  customers  in  times 
of  emergency  would  be  sure  to  obtain  the  greatest  amount  of 
normal  business.  No  business  man  would  care  to  deal  with  the 
banker  who  was  liable  to  fail  him  at  the  time  of  greatest  need. 
More  money  than  is  needed  would  not  be  made,  because  nobody 
would  have  any  interest  in  making  it  any  more  than  a  hatter  has 
in  making  hats  for  which  there  is  no  market. 

One  important  advantage  of  this  over  the  present  system  is, 
that  when  more  money  is  needed  in  business,  it  can  be  directly 
placed  in  the  hands  of  those  requiring  it.  If  the  government 
makes  an  increased  amount  of  money,  it  can  be  put  into  circula- 
tion only  through  its  expenditures  in  salaries,  pensions,  and  the 


1/2  REMOVE  MONEY  FROM  POLITICS. 

purchase  of  bullion  and  bonds.  Hence  the  banks  and  the  mer- 
chants can  only  obtain  the  money  through  the  indirect  route  of 
business  circulation.  Whereas,  if  the  money  was  made  for  the 
banks  instead  of  the  government,  it  could  pass  directly  from  the 
mint  or  printing-press  to  the  bank,  and  thence  to  the  manufac- 
turer or  merchant  who  most  needed  it.  Under  this  system  the 
supply  of  money  would  be  governed  by  economic  law  instead  of 
political  influence. 

The  transfer  of  the  money  question  from  the  domain  of  politics 
to  that  of  economics  would  be  beneficial  in  many  ways.  In  the 
first  place,  it  would  remove  the  banker's  excuse  for  exacting  ex- 
orbitant interest,  on  the  plea  that  the  government  is  responsible 
for  a  scarcity  of  money.  The  banker  being  responsible  for  the 
supply,  would  lose  his  business  by  failing  to  keep  up  his  stock 
just  as  would  any  other  merchant.  In  the  next  place,  this  change 
would  take  the  gold  and  silver  industries  out  of  politics.  Instead 
of  lobbying  in  Congress  to  increase  the  market  and  fix  the  price 
of  their  product,  the  gold  and  silver  men  would  have  to  go  into 
the  open  market  on  the  same  terms  as  other  producers.  Thus 
the  success  of  legitimate  public  business  would  not  depend  upon 
trading  for  the  political  influence  of  the  producers  of  the  precious 
metals  as  at  present.1  To  adopt  the  proposition  here  suggested 
would  be  to  transfer  to  the  individual  that  portion  of  the  money- 
supplying  function  which  he  can  perform  better  than  the  govern- 
ment, and  would  retain  in  the  hands  of  the  government  that 
portion  of  the  duty  which  it  can  perform  better  than  the  indi- 
vidual. We  would  then  have  in  our  monetary  system  all  the 
advantage  of  competition,  together  with  the  energy  and  business 
skill  of  private  enterprise — without  the  risk  of  adulteration  and 
other  "tricks  of  trade."  We  should  also  have  all  the  protective 
power  of  the  state,  without  the  monopoly  and  bungling  incompe- 
tency  inseparable  from  the  public  administration  of  business 
affairs. 

1  The  recent  silver  bill  was  passed  chiefly  through  the  fear  of  losing  the  polit- 
ical support  of  the  silver-producing  States. 


PART  III. 
THE  PRINCIPLES  OF  ECONOMIC  DISTRIBUTION. 


CHAPTER    I. 
THE  DISTRIBUTION  OF  WEALTH. 

SECTION  I. — Distribution  Inseparable  from  Production. 

DISTRIBUTION  is  frequently  regarded  as  if  it  were  separate  from 
production.  In  the  opening  paragraph  of  his  recent  work, 
"  The  Wages  Question,"  Francis  A.  Walker  makes  a  formal 
division  of  political  economy  into  the  following  four  distinct 
departments  :  "  The  production,  the  distribution,  the  exchange, 
and  the  consumption  of  wealth."  This  naturally  encourages  the 
popular  idea  that  distribution  can  be  dealt  with  independently  of 
production. 

Although  the  socializing  influence  of  wealth  penetrates  all 
phases  of  society,  there  are  but  two  economically  distinct  states 
in  which  wealth  ever  exists — namely,  that  of  production  and  that 
of  consumption.  Production  properly  includes  every  thing  that 
directly  or  indirectly  increases  the  utility  of  consumable  wealth. 

The  fact  that  the  manufacturer  divides  his  products  between  a 
number  of  wholesale  merchants,  and  these  in  turn  further  divide 
them  among  retail  dealers,  does  not  constitute  distribution  in  any 
economic  sense.  Such  division  of  products  into  small  quantities 
facilitates  their  delivery  to  the  consumer,  and  is  production.  It 
is  as  incorrect  to  call  a  dry-goods  dealer,  or  merchant-tailor, 
a  distributer  of  clothing,  as  it  would  be  to  call  the  planter  of 
wheat  a  distributer  of  food.  As  already  explained,1  every  thing 
which  aids  in  compassing  the  satisfaction  of  any  human  want  is 
properly  production. 

Consumption  is  every  thing  which  gratifies  human  wants  and 
desires,  whether  put  to  immediate  use  or  reserved  solely  for  that 
1  Part  II.,  chap,  i.,  p.  72. 
175 


176  PRODUCTION  INVOLVES  DISTRIBUTION. 

purpose  by  the  owners.  In  economic  science  therefore,  con- 
sumption only  applies  to  the  ultimate  use  of  the  finished  product, 
and  never  to  the  use  of  raw  material  or  tools.  We  frequently  hear 
such  expressions  as  the  consumption  of  pig-iron  in  the  manufac- 
ture of  rails,  and  the  consumption  of  wool  in  the  manufacture  of 
cloth.  The  wool  used  in  the  manufacture  of  cloth  is  not  con- 
sumed ;  it  has  simply  changed  its  form  in  order  to  assume  a 
higher  degree  of  utility.  It  ceases  to  exist  as  fleece  only  to 
become  broadcloth. 

The  wool  does  not  enter  a  state  of  consumption  until  it  is  in 
the  possession  of  the  wearer  of  the  cloth  ;  all  its  previous  uses 
have  served  no  economic  or  social  purpose  except  as  they  have 
been  a  means  to  that  end. 

There  is  production,  distribution,  and  consumption  of  wealth  ; 
there  are  producers  and  consumers  ;  but  there  are  no  economic 
distributers  of  wealth.  There  is  no  class  of  persons  in  the  com- 
munity whose  distinctive  function  is  to  distribute  wealth  except 
the  keepers  of  charitable  institutions  and  jails.  Distribution 
is  that  automatic  phase  of  economic  movement  by  which  wealth 
passes  from  the  sphere  of  production  to  that  of  consumption ; 
that  is  to  say,  from  those  who  use  it  as  a  means  to  those  who  use  it 
as  an  end.  The  means  through  which  this  takes  place  are  wages, 
rent,  interest,  and  profit.  The  consumable  wealth  which  finds  its 
way  to  the  various  classes  in  the  community  through  these  chan- 
nels, does  so,  not  as  the  result  of  any  effort  to  distribute  wealth, 
but  solely  as  a  necessary  and  inseparable  part  of  the  process  of 
production.  Wages  in  the  hands  of  the  laborer  are  distributed 
wealth,  but  in  the  hands  of  the  employer  they  are  capital  devoted 
to  production.  What  the  employer  pays  out  in  wages  is  invested 
in  production,  exactly  the  same  as  is  that  which  he  expends  for 
tools  and  raw  material,  but  when  it  reaches  the  laborer  it  is  trans- 
ferred from  the  sphere  of  production  to  that  of  consumption. 

Economic  distribution  is  neither  more  nor  less  than  invest- 
ment in  production.  Production  and  distribution  are  inseparable 
phenomena  ;  the  one  involves  the  other,  and  neither  can  take 
place  without  the  other  ;  therefore  to  talk  of  production  without 
distribution,  or  of  increasing  distribution  except  by  promoting 
production,  is  to  ignore  economic  law  ;  and  any  attempt  to  per- 
manently improve  the  social  condition  of  any  class  in  the  com- 
munity by  such  means  is  chimerical. 


USE   OF  PRODUCTIVE    WEALTH.  If? 

The  only  interest  the  community  can  have  in  either  class 
of  wealth  is  that  it  shall  fill  its  function  most  effectively,  and 
thereby  make  the  greatest  possible  contribution  to  social  welfare. 
Since  it  is  only  in  the  sphere  of  consumption  that  wealth  minis- 
ters to  human  well-being,  consumable  wealth  can  only  success- 
fully fill  its  function  by  being  in  the  possession  of  the  individual 
consumer,  as  it  cannot  yield  the  maximum  social  benefit  for  one 
person  while  under  the  control  of  another. 

On  the  contrary,  productive  wealth  can  and  frequently  does 
render  its  maximum  service  to  one  class  while  in  the  possession 
of  another.  The  only  concern  the  community  can  possibly  have 
in  the  distribution  or  ownership  of  productive  wealth  is  that 
it  shall  be  most  effectually  employed  in  making  consumable 
wealth  cheap  and  abundant.  Therefore  the  idea,  so  persistently' 
propagated  by  Karl  Marx  and  sacredly  cherished  by  socialists 
everywhere,  that  it  is  necessary  for  the  laboring  classes  to  own 
the  instruments  of  production  in  order  to  secure  the  social  ad- 
vantage of  the  product,  is  an  unmixed  delusion.  Whether  or  not 
productive  wealth  should  be  concentrated  in  a  few  hands,  or 
evenly  distributed  throughout  the  community,  or  owned  by  the 
government,  is  absolutely  of  no  importance  to  the  general  welfare 
except  as  it  may  affect  the  efficiency  of  its  use  as  a  productive 
factor. 

Productive  wealth,  whether  in  the  form  of  land,  machinery, 
buildings,  raw  material,  or  unfinished  products,  is  of  no  advan- 
tage to  its  owner  except  as  it  passes  into  consumable  wealth, 
and  the  possession  of  consumable  wealth  does  not  in  any  sense 
depend  upon  the  ownership  of  productive  wealth. 

More  than  eighty  per  cent,  of  the  consumable  wealth  daily 
produced  in  this  country  is  consumed  by  those  who  possess 
no  productive  wealth.  Since  production  is  impossible  without 
consumption,  and  productive  wealth  can  only  confer  benefit 
upon  its  owner  as  it  increases  consumable  wealth,  it  follows  that 
the  concentration  and  increased  efficiency  of  productive  wealth 
tends  to  promote  the  general  distribution  of  consumable  wealth.1 

There  is  no  fact  in  the  history  of  civilization  which  is  more 
conclusively  established  than  that  every  departure  from  hand- 
labor  to  factory  methods  of  production,  and  therefore  from  dear 

1  Cf.   "  Wealth  and  Progress,"  pp.  7-9. 
12 


1/8         USE  OF  CONSUMABLE  WEALTH. 

to  cheap  consumable  wealth,  has  been  accomplished  by  the  con- 
centration of  productive  wealth.  Nor  could  this  be  otherwise, 
because  all  the  motives  that  make  the  concentration  of  productive 
wealth  desirable  tend  to  make  the  distribution  of  consumable 
wealth  indispensable.1 

It  will  thus  be  seen  that,  in  considering  the  subject  of  economic 
distribution,  we  are  concerned  only  with  the  movement  of  con- 
sumable wealth,  in  regard  to  which  four  facts  should  be  recog- 
nized, (i)  That  wealth  never  contributes  to  social  welfare 
except  when  in  the  sphere  of  consumption.  (2)  That  no  move- 
ment of  wealth  is  distribution  which  does  not  transfer  it  from 
the  producer  to  the  consumer.  (3)  That  this  distributive  move- 
ment is  not  separate  from  production,  but  is  an  inseparable  part 
•of  it.  (4)  That  the  forms  in  which  wealth  passes  to  the  community 
are  wages,  rent,  interest,  and  profit. 

SECTION  II. —  The  Order  of  Economic  Distribution. 

The  order  of  economic  distribution  generally  held  by  English 
economists  is  rent,  wages,  and  profit,  thus  making  the  amount  the 
laborer  receives  depend  upon  what  is  left  after  rent  is  paid.  Con- 
sistently with  this  classification,  Henry  George  declares  that  rent 
is  the  great  social  "  robber,"  and  demands,  as  the  remedy  for 
social  ills,  the  confiscation  of  rent  by  the  abolition  of  private 
ownership  in  land.  Had  he  not  placed  rent  first  in  the  order  of 
distribution,  his  reckless  misstatement  of  facts  regarding  wages  * 
would  have  availed  him  little  ;  but  having  made  rent  the  first 
claimant  he  found  little  difficulty  in  declaring  that  the  remaining 
shares  would  be  lessened  by  that  amount,  and  consequently  that 
the  wealth  of  the  landowner  caused  the  poverty  of  the  laborer.3 

During  the  last  twenty  years  a  departure  has  been  made  from 
the  orthodox  position.  Jevons,  the  most  prominent  representa- 
tive of  the  "  new  school  "  in  England,  says  :  "The  view  which  I 
accept  concerning  the  rate  of  wages  is  not  more  difficult  to  com- 
prehend than  the  current  one.  It  is  that  the  wages  of  a  working 
man  are  ultimately  coincident  with  what  he  produces,  after  the  de- 

1  Cf.  article  in  Political  Science  Quarterly,  vol.  iii.,  pp.  405,  406. 

*  "Wealth  and  Progress,"  Part  II.,  chapter  i.,  section  iii. 

*  "  Progress  and  Poverty,"  pp.  162,  163. 


WALKER'S  INCONSISTENCY.  1/9 

duction  of  rent,  taxes,  and  the  interest  of  capital." '  Francis  A. 
Walker,  with  an  astonishing  amount  of  inconsistency,  adopts  the 
same  classification.  After  several  times  alternately  affirming  op- 
posite positions,  he  says  :  "  I  hold,  with  Professor  Stanley  Jevons, 
that  wages  equal  the  whole  product  minus  rent,  interest,  and 
profits."  J  It  will  be  seen  that  this  classification  not  only  places 
rent  before  wages,  as  George  does,  but  it  places  interest  and 
profits  there  also,  making  wages  the  contingent  amount  after  all 
else  is  paid,  and  thus  completely  verifying  the  socialists'  charge 
that  under  the  capitalistic  system  of  production,  wages  are 
merely  the  leavings  after  rent,  interest,  and  profit  are  paid. 
These  statements  of  George,  Jevons,  and  Walker  involve  two 
errors  :  one  regarding  the  nature  of  economic  distribution,  the 
other  the  order  in  which  the  distribution  takes  place. 

(i)  They  all  discuss  the  question  of  distribution  as  if  it  were 
the  disbursement  of  a  fixed  amount  of  existing  wealth  ;  hence 
they  constantly  speak  of  the  "  division  of  the  product  between 
landlords,  capitalists,  and  laborers  "  as  the  "  shares  of  the  differ- 
ent claimants,"  etc.  The  idea  of  dividing  a  fixed  quantity  of 
wealth  involves  the  assumption  that  if  the  amount  obtained  by 
any  one  class  increases,  that  of  the  other  classes  must  necessarily 
diminish  in  the  same  ratio.  This  popular  error  pervades  the 
writings  of  all  the  schools.  Among  the  English  writers  it  is  ex- 
pressed in  that  familiar  statement  of  Ricardo  and  Mill,  that 
"  profits  depend  upon  wages,  rising  as  wages  fall  and  falling  as 
wages  rise." '  It  is  no  less  frankly  expressed  by  Perry  in  his 
"  Rule  of  Three  "  discussion  of  wages,"  4  and  by  Henry  George 

1  "  Theory  of  Political  Economy,"  p.  292. 

1  "Political  Economy,"  p.  284,  1st  edition.  Compare,  ibid.,  pp.  197,  198 
with  203,  1st  edition  ;  also  254  with  -264  ist  edition.  See  also,  262,  263,  1st 
edition. 

3  Ricardo's  Works,  pp.  63,  74,  75,  93.     Mill's  "  Principles  of  Political  Econ- 
omy," vol.  i.,  p.  512. 

4  "  There  is  no  use  arguing  against  any  one  of  the  four  fundamental  rules  of 
arithmetic.     The  question  of  wages  is  a  question  of  division.     It  is  complained 
that  the  quotient  is  too  small.     Well,  then,  how  many  ways  are  there  to  make  a 
quotient  larger?     Two  ways.     Enlarge  your  dividend,  the   divisor  remaining 
the  same,  and  the  quotient  will  be  larger  ;  lessen  your  divisor,  the  dividend  re- 
maining the  same,  and  the  quotient  will  be  larger." — "  Political  Economy," 
p.  123,  ist  edition. 


180  FALLACY  OF   THE  RESIDUAL    THEORY. 

in  his  "  Tom,  Dick,  and  Harry  "  partnership  illustration.  l  Were 
this  view  correct,  the  employing  and  laboring  classes  would  in- 
deed be  the  natural  enemies  of  each  other,  and  revolution  would 
be  the  only  means  of  assuring  progress,  as  many  ill-informed  en- 
thusiasts would  have  us  believe. 

The  whole  idea  of  regarding  distribution  as  mere  division  is 
erroneous.  Economic  distribution  through  wages,  rent,  and  in- 
terest is  not  the  division  of  wealth  that  exists,  but  an  investment 
to  bring  wealth  into  existence  ;  hence  wages  are  not  related  to  pro- 
duction as  the  residual  share  of  a  division,  but  solely  as  an  antecedent 
cost  of  production  ;  and  since  that  which  each  productive  factor 
receives  is  determined  by  its  own  cost,  the  amount  it  obtains  can 
in  no  way  increase  or  diminish  that  which  any  other  factor  shall 
receive. 

(2)  The  position  of  these  writers  in  discussing  the  order  of 
distribution  is  no  less  unsatisfactory.  Mr.  Walker  appears  to 
think  that  in  being  "  the  residual  claimant  of  the  product  of 
industry,"  the  laborer  has  a  superior  command  over  the  increased 
quantity  of  wealth  which  he  produces,  and  says  :  "  In  this  view 
the  laboring  class  receive  all  they  help  to  produce  "  "  ;  and  adds  : 
"  So  far  as  by  their  energy  in  work,  their  economy  in  the  use  of 
materials,  or  their  care  in  dealing  with  the  finished  product,  the 
value  of  that  product  is  increased,  that  increase  goes  to  them  by 
purely  natural  laws,  provided  only  competition  be  full  and  free."' 

By  what  natural  law  this  increased  product  "  inures  directly  and 
immediately  to  their  (the  laborers')  benefit,"  he  does  not  explain. 
In  his  "  web-of-cloth  "  illustration,  Walker  assures  us  that  the  la- 
borer is  never  paid  before  the  manufacturer.4  And,  in  his  chap- 
ter on  profits,  he  says  :  "  The  fact  that  these  wages  are  so  high  is 

1  "  To  fix  Tom's  share  at  40  per  cent.,  is  to  leave  but  60  per  cent,  to  be  di- 
vided between  Dick  and  Harry.  To  fix  Dick's  share  at  40  per  cent,  and  Harry's 
share  at  35  per  cent,  is  to  fix  Tom's  share  at  25  per  cent." — "  Progress  and 
Poverty,"  p.  118. 

*  "  Political  Economy,"  p.  263,  ist  edition. 

*  Ibid.,  p.  266. 

There  remain  but  two  parties  as  claimants  ...  on  the  one  side  stands 
a  crowd  composed  of  persons  engaged  in  the  mill  ...  on  the  "other  side  stands 
the  manufacturer.  All  that  these  do  not  take  will  be  his  ;  and  as  piece  after  piece 
is  rapidly  cut  off,  he  seems  to  fear  that  not  enough  will  remain  for  him.  .  .  . 
At  last  the  manufacturer  is  left  with  his  share." — "  Political  Economy,"  p.  188. 


WALKER'S  RADICAL  ERROR.  181 

the  reason  why  the  employers  are  unable  (other  things  being  the 
same)  to  realize  any  profits  for  themselves."  '  If  it  is  true  that 
"  wages  are  an  essential  part  of  the  cost  to  the  employer  "  and 
must  be  paid  before  he  can  have  any  profit,  they  cannot  possibly 
be  a  contingent  surplus  after  profit  is  made.  Either  Walker  is 
wrong  in  his  "  web-of-cloth  "  and  entrepreneur  discussion,  or  his 
doctrine  that  wages  are  the  "  residual  claimant  "  is  wholly  falla- 
cious. That  factor  which  receives  the  contingent  surplus  must  of 
necessity  also  bear  the  contingent  losses  ;  and  this,  it  is  needless 
to  say,  the  wage-receiver  never  does. 

If  Walker  can  point  to  any  "  natural  law  "  by  which  the  in- 
creased production  "  inures  directly  and  immediately  "  to  the  la- 
borer as  wages,  he  will  have  discovered  an  economic  force  the 
existence  of  which  was  never  before  heard  of.  The  fact  is  that  no 
such  thing  ever  occurs,  nor  can  it  possibly  do  so  under  the  wages 
and  entrepreneur  regime.  That  an  absurdity  so  obvious  to  Walker 
when  discussing  the  theory  of  the  "  entrepreneur's  profits,"  should, 
within  a  dozen  pages,  be  dogmatically  affirmed  as  natural  law,  is 
not  a  little  astonishing.  Fortunately  for  the  stability  of  social  in- 
stitutions it  can  easily  be  shown  that  the  George,  Jevons,  and 
Walker  classification  is  radically  erroneous.  All  economic  and 
social  forces  conspire  to  make  wages  the  first  and  profit  the  last, 
in  the  order  of  distribution. 

The  economic  order  in  which  wealth  is  distributed — as  wages, 
rent,  interest,  and  profit — must  necessarily  follow  that  in  which 
the  classes  to  whom  they  are  paid  came  into  existence.  That  this 
was  the  laborer,  the  landowner,  the  capitalist,  and  the  entrepreneur 
is  an  historic  fact  too  obvious  to  need  discussing. 

The  economic  reason  for  this  is  not  difficult  to  understand. 
There  are  two  facts  co-extensive  with  the  human  race  :  (i)  that 
no  class  will  permanently  aid  in  production  unless  it  receives  the 
equivalent  of  the  cost  of  its  contribution.  (2)  That  the  commu- 
nity will  not  continuously  pay  for  a  contribution  to  production 
which  does  not  yield  them  as  much  as  it  costs.  Every  change  of 
method  or  policy,  whether  economic,  ethical,  or  political,  has  sim- 
ply been  an  effort  to  improve  existing  conditions.  Established 
methods  and  institutions  never  were,  never  will  be,  and  never 
should  be  abandoned  for  any  other  reason.  Indeed,  were  this 
1  "  Political  Economy,"  p.  241. 


1 82  HISTORIC  ORDER   OF  DISTRIBUTION. 

otherwise,  there  would  be  no  certainty  in  progress  and  no  safety 
to  civilization. 

Obviously,  then,  the  only  condition  upon  which  primitive  man 
would  devote  his  efforts  to  production  is  that  it  would  afford  him 
a  living.  It  is  equally  clear  that  he  would  not  give  a  portion  of 
the  product  for  the  use  of  any  new  factor  unless  he  could  obtain 
a  still  better  living  by  so  doing.  For  the  same  reason  that  no- 
rent  land  will  only  be  cultivated  when  it  will  yield  more  than  can 
be  obtained  from  the  chase,  rent  will  be  paid  for  land  only  when 
it  will  yield  as  much,  or  more,  plus  the  rent,  than  could  be  ob- 
tained from  no-rent  land.  In  other  words,  nothing  can  make  rent 
possible  that  does  not  make  land  yield  more  than  the  labor-cost 
of  its  use. 

As  society  advances,  with  the  division  of  labor  and  the  pro- 
duction of  manufactured  commodities,  capital,  the  third  factor, 
begins  to  be  employed  in  production.  The  capitalist,  like  the 
landowner,  wants  pay  for  his  contribution — tools,  machinery, 
buildings,  etc.  There  is  no  economic  force  by  which  he  can  ob- 
tain any  thing  by  excluding  either  of  the  other  two  factors,  namely, 
wages  and  rent.  If  he  prevents  the  laborer  from  receiving  a  liv- 
ing, his  tools  and  capital  cannot  be  employed.  If  he  demands  all 
that  remains  after  paying  the  laborer,  the  landowner  will  refuse 
him  the  use  of  the  land  ;  and  this  also  would  prevent  his  capital 
from  being  used.  Clearly,  the  capitalist  cannot  prevent  the  other 
factors  from  being  employed  in  production  ;  but  either  of  the 
others  can  ;  and  unless  he  pays  their  cost  they  will  surely  prevent 
him.  He  is  the  last  comer,  and  the  only  way  he  can  be  employed 
and  receive  any  thing  for  his  service  is,  to  so  increase  the  aggre- 
gate product  that  a  surplus  will  remain  after  paying  the  other  two. 
It  is  only  on  condition  that  the  capitalist  contributes  more  to  the 
product  than  he  takes  from  it  that  he  can  become  a  permanent 
factor  in  production,  and  this  is  precisely  what  he  has  always 
done. 

Finally,  in  the  most  complex  state  of  society  the  fourth  factor — 
the  entrepreneur  class — appears.  Under  this  regime,  the  division 
of  labor  and  the  complexity  of  productive  methods  are  such  that 
the  laborer,  and,  to  a  large  extent,  the  capitalist,  has  no  ownership 
in  the  product,  but  the  whole  enterprise  is  conducted  by  the  en- 
trepreneur. He  hires  all  the  factors,  and  takes  all  the  risks  and  all 


ECONOMIC  ORDER   OF  DISTRIBUTION.  183 

the  results.  Instead  of  the  laborer  obtaining  the  product  and 
paying  the  landowner,  the  entrepreneur  pays  the  laborer  his 
wages,  the  landowner  his  rent,  and  the  capitalist  his  interest. 
Then  the  whole  product  is  his.  If  he  sells  it  for  more  than  the 
aggregate  cost  of  these  three  factors  and  his  own  living  (which  is 
his  wages),  the  remainder  is  his  as  profit.  If  he  sells  it  for  less 
than  cost  the  loss  is  his.  Wages,  rent,  and  interest  are  all  indis- 
pensable to  the  entrepreneur  regime  of  production.  None  of 
these  can  be  eliminated  without  destroying  the  entrepreneur,  but 
he  can  be  eliminated  and  the  others  remain  intact.  And  so  on 
all  the  way  down.  The  subsequent  factors  can  never  produce 
without  the  preceding  ones,  but  by  returning  to  simpler  methods 
the  preceding  ones  can  always  produce  without  the  subsequent 
ones. 

It  is  thus  evident  that,  in  the  progress  of  society,  the  factors 
have  entered  production  in  the  order  stated,  and  therefore  eco- 
nomic distribution  must  necessarily  be  first  wages,  then  rent, 
interest,  and  profit.  In  this  order  they  will  be  considered  in  the 
succeeding  chapters. 

In  the  natural  order  of  distribution,  the  laborer  being  necessa- 
rily the  first  to  besupplied,  the  most  Utopian  scheme  ever  contem- 
plated could  not  put  him  nearer  the  product  than  natural  law 
has  placed  him.  In  studying  how  to  improve  his  economic  con- 
dition the  question  is  not  how  to  change  his  position  in  the  order 
of  distribution,  but  how  to  increase  the  amount  which  he  receives. 
This  involves  a  consideration  of  the  law  of  wages  and  will  next 
occupy  our  attention. 


CHAPTER  II. 
SOME  RECENT  THEORIES  OF  WAGES  CONSIDERED. 

SECTION  I. — Dr.  Stuart   Wood's  Theory. 

IN  a  previous  work '  the  merits  of  the  three  most  prominent 
theories  of  wages  then  current  were  considered,  namely,  the 
Wages'-fund  theory,  and  the  theories  of  Francis  A.  Walker  and 
Henry  George.  Since  that  time  another  theory  has  been  presented 
by  Dr.  Stuart  Wood.2  This  theory  being  presented  by  a  scholar 
and  a  close  student  of  economic  science,  and  propagated  through 
the  journal  of  Harvard  University,  is  entitled  to  consideration. 

He  begins  by  affirming  that :  "  The  market  price  of  labor  is 
that  price  which  prevails  at  any  given  time  in  virtue  of  the 
existing  supply  and  demand.  .  .  .  But  price  can  only  be  in 
equilibrium  on  the  condition  that  supply  and  demand  are  equal."3 
Then  he  proceeds  to  argue  that  both  commodities  and  labor  are 
used  inversely  to  their  price  ;  increasing  as  the  price  falls  and 
decreasing  as  it  rises,  until  the  equilibrium  between  demand  and 
supply  is  reached.  He  formally  presents  the  law  of  wages  as 
follows  : 

"  We  may  state  this  law  of  wages  in  the  following  terms  :  The 
price  of  a  given  amount  of  labor  is  the  same  as  the  price  paid  for  the 
use  of  such  amount  of  capital  as  would  replace  that  labor  in  those 
employments  where  labor  and  capital  are  interchangeable  and  where 
either  can  be  used  to  equal  advantage."  4 

1  "  Wealth  and  Progress,"  1887. 

2  Quarterly  Journal  of  Economics  for  October,   1888  and  July,   1889  ;  also 
"  Publications  American  Economic  Association,"  vol.  iv.,  No.  I. 

"  Publications  American  Economic  Association,"  vol.  iv.,  No.  I,  p.  7  ;  also 
Quarterly  Journal  of  Economics,  vol.  iii.,  No.  I,  p.  6l. 
4  Ibid.,  p.   15  ;  cf.   Journal  of  Economics,  vol.  iii.,  No.  I,  pp.  68,  71. 

184 


THEORY  OF  FINAL    UTILITY.  185 

After  nine  pages  of  elaboration  he  repeats  the  above  formula 
and  says  :  "  The  same  prices,  which  are  paid  for  such  amounts  of 
labor  and  capital  as  are  interchangeable  in  those  occupations 
where  they  are  indifferently  employed,  are  also  paid  for  equal 
amounts  of  labor  and  capital  in  whatever  other  employment  they 
may  be  engaged  in."  ' 

It  will  be  seen  from  the  above  that  this  doctrine  affirms  :  (i) 
That  wages  are  governed  by  supply  and  demand  rising  or  falling 
until  the  "  supply  and  demand  are  equal."  (2)  That  the  general 
rate  of  wages  thus  determined  is  fixed  by  the  final  (minimum) 
utility  of  that  portion  of  the  supply  of  laborers  "  which  come  into 
use  last."  '  (3)  That  at  the  wage-determining  point,  the  price  of 
labor  and  the  price  of  capital  are  identical — i.e.,  the  amount  paid 
in  wages  and  that  paid  in  interest  for  the  same  amount  of  produc- 
tive energy  are  exactly  equal  to  each  other.  (4)  That  the  same 
rate  of  wages  and  interest  that  prevails  at  that  point  are  paid  in 
all  other  employments  where  capital  and  labor  are  jointly  used. 

The  first  proposition  is  simply  a  reaffirmation  of  the  wages- 
fund  theory.  The  fallacy  of  that  doctrine  has  already  been  so 
completely  shown,  that  comment  here  is  entirely  unnecessary.3 

The  second  point  in  this  theory  is  that  the  rate  of  wages  which 
supply  and  demand  determines,  is  fixed  at  the  point  of  the  final 
utility  of  those  laborers  who  are  employed  last.  "  The  price  of 
labor,"  says  Mr.  Wood,  "is  regulated  as  are  the  prices  of  all 
commodities  by  its  final  utility  ;  by  the  utility,  that  is,  of  that 
portion  which  comes  into  use  last."  Here  again  he  affirms  a 
proposition  without  attempting  to  prove  it.  Why  we  should 
believe  that  the  prices  of  all  commodities  are  regulated  by  their 
final  utility,  he  does  not  attempt  to  show. 

By  final  utility  is  meant,  that  portion  of  the  general  supply  of 
a  commodity  which  possesses  the  minimum  utility  for  the  pur- 
chaser. For  example,  suppose  in  a  given  community  a  thousand 
pairs  of  shoes  a  week  could  be  consumed,  there  would  doubtless 
be  a  few  who  would  give  $10  a  pair  rather  than  go  barefooted, 
but  there  is  a  certain  portion  who  would  go  without  shoes  rather 
than  give  more  than  $2  a  pair.  The  point  at  which  they  would 

"  Publications  American  Economic  Association,"  vol.  iv.,  No.  I,  p.  29. 
1  Ibid.,  p.  9. 
3  "  Wealth  and  Progress,"  pp.   35-52.     See  also  present  work,  pp.  105-107. 


1 86  WAGES  NOT  FIXED  BY  FINAL    UTILITY. 

go  without  shoes  rather  than  pay  a  higher  price,  is  called  the  final 
utility  of  the  shoes.  The  price  at  which  those  can  obtain  the 
shoes,  for  whom  they  possess  the  least  utility,  will  of  course  be 
that  at  which  all  can  buy  them.  The  uniform  price  will  thus 
always  represent  the  point  of  final  utility,  but  it  does  not  follow 
from  this  that  the  price  is  "  regulated  by  the  final  utility."  All 
that  this  proves  is  that  the  price-determining  point  and  that  of 
final  utility  are  identical. 

A  very  little  examination  will  show  that  instead  of  the  final 
utility  determining  the  price,  it  is  more  frequently  the  price  that 
determines  the  point  of  final  utility.  If,  for  instance,  the  cost  of 
producing  the  shoes  should  be  increased  so  that  they  could  not 
be  made  for  less  than  $3  a  pair,  all  those  who  would  buy  at  $2 
but  would  not  give  $3,  would  have  to  go  without  shoes.  The 
point  of  final  utility  would  thus  be  changed  from  $2  to  $3  a  pair, 
and  the  shoes  would  only  be  sold  to  those  who  would  rather  give 
$3  than  go  without.  On  the  other  hand,  if  by  any  improved 
methods  of  production  the  shoes  could  be  made  for  $i  a  pair,  all 
those  who  would  not  give  $2,  but  would  give  $i  a  pair,  could 
have  shoes,  then  the  point  of  final  utility  would  at  once  move 
from  $2  to  $i  a  pair.  It  is  obvious  that  in  this  case  the  price 
would  not  be  fixed  by  the  final  utility,  but  the  final  utility  would 
be  fixed  by  the  price,  and  this  is  precisely  what  occurs  in  every-day 
experience.  Clearly  then,  while  the  final  utility  will  always  be  at 
the  same  point  as  the  price,  it  is  an  error  to  say  that  the  final 
utility  determines  the  price.  This  is  another  of  the  numerous  in- 
stances of  trying  to  elevate  a  mere  truism  into  a  general  law. 
Like  the  wage-fund  theory,  the  final-utility  doctrine  at  most  only 
states  a  quantitative  fact — not  a  dynamic  principle. 

Nor  does  Mr.  Wood  make  any  effort  to  explain  why  the  point 
of  final  utility  is  necessarily  fixed  by  the  "  portion  which  comes 
into  use  last."  It  is  a  well-known  fact  that,  in  the  evolution  of 
industry,  the  accessions  to  every  working  group  are  always  on 
the  outer  edge  of  the  industrial  field.  The  movement  of  labor, 
whether  slow  or  rapid,  is  constantly  from  barbarism  to  civiliza- 
tion, from  pastoral  to  agricultural  life,  from  agriculture  to  manu- 
facture, and  from  inferior  to  superior  manufacturing  countries 
and  localities.  Thus  we  see  in  England  the  accessions  to  the 
manufacturing  districts  generally  consist  of  the  cheaper  laborers 


WAGES  DO  NOT   TEND    TO    UNIFORMITY.  iS/ 

from  the  agricultural  districts,  and  in  America  the  accession  is 
from  the  cheaper  labor  of  other  countries.  In  fact  the  mobility 
of  labor  is  universally  towards  more  remunerative  fields  of  em- 
ployment, and  therefore  the  last  increment  is  always  the  cheapest 
— i.e.,  the  poorest. 

Thus  if  prices  determined  by  the  final  utility,  and  the  point  of 
final  utility  were  fixed  by  the  "  portion  which  comes  into  use  last," 
then  wages  would  necessarily  be  determined  by  the  poorest  labor- 
ers. Moreover,  since,  according  to  Mr.  Wood's  theory,  the  same 
price  which  is  paid  for  a  given  amount  of  labor  at  the  price-fixing 
point,  will  determine  the  price  that  is  paid  for  a  similar  amount 
of  labor  in  any  other  employment,  it  follows  not  only  that  the 
rate  of  wages  in  any  industry  is  governed  by  the  cheapest  labor- 
ers in  that  industry,  but  that  the  general  rate  of  wages  in  all  in- 
dustries is  determined  by  the  poorest  laborers  in  the  least  remun- 
erative industry.  Now  this  is  precisely  Henry  George's  doctrine 
of  the  "  Margin  of  Cultivation  "  which  we  have  already  shown  to 
be  contrary  to  the  commonest  facts  of  experience.1 

If  there  were  any  truth  in  this  proposition,  wages  in  all  indus- 
tries would  be  either  uniform  or  constantly  tending  towards  uni- 
formity on  the  level  of  the  poorest.  The  wages  of  the  carpenters, 
plumbers,  painters,  bricklayers,  printers,  and  highest-paid  me- 
chanics of  New  York  City  would  constantly  be  tending  towards 
the  level  of  the  lowest  continental  and  Asiatic  immigrant  and  the 
poorest  agricultural  laborer,  which  is  too  obviously  absurd  to  need 
discussing.  Instead  of  wages  tending  towards  a  general  uniform- 
ity at  the  lowest  point,  they  are  constantly  tending  towards  a  greater 
diversity  as  the  differentiation  of  productive  groups  or  industries 
advances.  And,  as  we  shall  see  in  the  next  chapter,  whatever  ten- 
dency there  is  towards  uniformity,  it  is  towards  uniformity  with  the 
dearest  and  not  with  the  cheapest  labor  in  each  industrial  group. 

The  third  postulate  in  this  theory  is,  that  at  the  price-fixing 
point  the  amount  paid  in  wages  and  that  paid  in  interest  are  ex- 
actly equal  to  each  other,  and  that  the  same  prices  are  paid  for  the 
same  amounts  of  either  labor  or  capital  in  all  other  employments.2 
In  other  words,  that  the  amount  of  capital  which  will  produce  as 

1  "  Wealth  and  Progress,"  Part  II.,  chap,  i,,  sec.  iii. 

*  "  The  same  price,  whether  it  is  called  wages  or  interest,  is  paid  for  that 
amount  of  labor  and  for  that  amount  of  capital  which  can  supplant  each  other 


l88  UNIMPORTANT  IF    TRUE. 

much  as  a  given  amount  of  labor,  will  everywhere  receive  the 
same  in  interest  as  the  labor  does  in  wages. 

Mr.  Wood  evidently  regards  this  point  as  the  most  important 
in  his  whole  argument,  repeating  it  several  times  in  italics,  as  a 
formula  of  the  new  law  of  wages.1  This  is  essentially  the  position 
taken  by  Marx.*  The  only  difference  is  that  Marx  claims  that 
all  the  product  rightfully  belongs  to  the  laborer  and  treats  that 
which  goes  to  the  capitalist  as  unjust  "  exploitation," '  while  Mr. 
Wood  regards  the  equal  division  of  the  product  between  the 
laborer  and  the  capitalist  as  the  result  of  natural  law. 

Now  assuming  this  postulate  to  be  entirely  correct,  what  does 
it  establish  ?  what  explanation  does  it  afford  of  the  law  of  wages  ? 
If  all  it  affirms  is  true,  it  only  shows  that  wages  equal  interest. 
Wages  may  equal  interest  and  still  be  very  high  or  very  low.  It 
affords  no  explanation  of  why  wages  are  10  cents  a  day  in  China, 
40  cents  in  Russia,  60  cents  in  Germany,  .$1.25  in  England,  or 
$2  in  America,  to  say  they  equal  the  amount  paid  in  interest. 
Nor  is  it  any  advantage  to  the  laborer  who  is  receiving  low  wages 
to  tell  him  that  the  income  of  his  employer  is  at  zero.  The 
laborer's  social  welfare  depends  upon  his  actual,  not  his  relative, 
income.  It  is  the  absolute  amount  of  opportunity,  comfort,  and 
luxury  he  enjoys  which  determines  the  extent  of  his  social  well- 
being,  and  not  whether  or  not  the  employer  has  more  or  less 
of  these  things. 

Nor  does  this  theory  appear  to  any  better  advantage  when 
tested  by  the  facts.  It  should  be  remembered  that  by  the  ex- 
pression, "  price  of  using  capital,"  Dr.  Wood  means  the  net  gain 
to  the  capitalist  from  its  use,  and  not  the  cost  of  keeping  the 
capital  (machinery,  etc.)  intact,  as  his  language  would  sometimes 

and  render  the  same  services  in  those  industries  where  their  relative  superiorities 
merge,  or  which  can  in  different  industries  render  services  equally  esteemed  by 
effective  desire.  And  the  same  prices  as  are  paid  in  these  cases  for  labor  and  for 
the  use  of  capital  are  also  paid  for  them  in  all  their  other  employments." — Quar- 
terly Journal  of  Economics,  vol.  iii.,  No.  I,  p.  86. 

1  Quarterly  Journal  of  Economics,  vol.  iii.,  No.   I,  pp.  68,  71,  72,  84,  86  ; 
ibid. ,  No.  4,  p.  478  ;  also  "  Publications  American  Economic  Association,"  vol. 
iv.,  No.  I,  pp.  15,  19. 

2  "  Capital,"  chap  vii.,  sec.  ii.,  pp.  166-176. 

*  Karl  Marx's  Doctrine  of  Exploitation  and  Surplus  Value  is  considered  in 
chapter  iv.  of  this  Part. 


THE    THEORY  CONTRARY   TO  FACTS.  189 

seem  to  imply.1  The  statement,  that  "  the  price  of  a  given  amount 
of  labor  is  equal  to  the  price  which  is  paid  for  the  use  of  such 
amounts  of  auxiliary  capital  as  can  replace  it  in  those  occupa- 
tions where  the  two  things  may  be  indifferently  employed  with 
equal  pecuniary  advantage," "  and  that  "  the  same  prices  as  are 
paid  in  these  cases  for  labor  and  for  the  use  of  capital  are  also 
paid  for  them  in  all  their  other  employments,"'  affirms:  (i) 
that  all  capital  receives  interest,  the  rate  of  which  is  the  same  in 
all  employments  ;  (2)  that  "  the  rate  of  wages  or  the  price  of 
using  labor  "  is  determined  by  "  the  rate  of  interest  or  the  price 
of  using  capital." 

The  first  of  these  affirmations  is  so  manifestly  at  variance  with 
all  industrial  experience  that  it  almost  seems  trifling  to  discuss  it. 
Instead  of  interest  or  profits  being  uniform — />.,  the  same  "  in 
all  other  employments,"  the  reverse  is  everywhere  the  case.  In 
all  fairly  well  established  industries  where  any  appreciable  amount 
of  capital  is  employed,  interest  or  profit  varies  from  zero  up.  In 
farming  and  every  branch  of  manufacture  there  are  to  be  found 
some  who  are  barely  holding  their  own  and  keeping  their  capital 
intact.  There  are  many  who  for  years  together  receive  no  interest 
for  the  use  of  their  capital,  and  frequently  some  who  continue  to 
employ  it  at  a  net  loss,  while  others  in  the  same  business  and 
often  in  the  some  locality  receive  five,  ten,  and  sometimes  twenty 
per  cent,  profit.  It  is  exactly  at  this  no-interest  point  that  the  price 
of  the  product  is  determined  4  ;  and  every  time  this  price-fixing 
point  is  lowered  by  the  use  of  improved  methods  of  production, 
these  no-interest  producers  are  compelled  to  produce  at  a  loss  or 
leave  the  business.  This  is  the  only  means  by  which  the  price 
of  commodities  is  permanently  reduced.  It  is  in  this  process  of 
pushing  the  price  below  the  plane  of  the  no-interest  producer  that 

1  This  point  he  makes  clear  by  saying  :  "  But  the  charges  for  insurance  and 
for  renewals,  or  wear  and  tear,  are  not  strictly  charges  for  the  use  of  capital,  but 
simply  a  provision  to  preserve  its  amount  unimpaired.  .  .  .  Disregarding, 
therefore,  all  items  of  cost  of  employing  auxiliary  capital  except  interest,  the 
law  of  wages  assumes  this  form  :  The  interest  on  capital  and  the  price  of  labor, 
in  all  employments,  are  fixed  by  the  rates  paid  for  their  use  in  those  of  their  actual 
employments  in  which  they  are  used  indifferently"  etc. — Quarterly  Journal  of 
Economics,  vol.  iii.,  No.  I,  pp.  71,  72. 

8  Quarterly  Journal  of  Economics,  vol.  iii.,  No.  I,  p.  68. 

1  Ibid.,  p.  86.  4  Part  II.,  chapter  iv.,  section  iii. 


190  WAGES   UNLIKE  INTEREST. 

small  concerns  are  constantly  being  "  crowded  out  of  business  by 
large  ones '  ;  and  this  tendency  increases  as  the  use  of  capital 
and  specialization  of  industry  develops  and  civilization  advances. 
Since,  in  all  well  established  industries  subject  to  free  competi- 
tion, there  is  capital  employed  which  receives  a  liberal  return  as 
interest  or  profits,  and  in  the  same  industries  capital  is  employed 
for  the  use  of  which  no  interest  whatever  is  paid,  it  is  manifestly 
incorrect  to  say  :  "  The  same  prices  .  .  .  are  also  paid  for  equal 
amounts  of  labor  and  capital  in  whatever  other  employments  they 
may  be  engaged  in." 

Nor  is  the  second  affirmation  any  more  consistent  with  the 
facts.  If  it  were  true  that  the  rate  of  wages  is  determined  by,  or 
only  equal  to,  the  rate  of  interest,  the  rate  of  wages  could  never 
exceed  the  amount  paid  for  the  use  of  the  capital  representing  an 
equal  amount  of  productive  force.  According  to  this  hypothesis, 
wherever  the  capital  is  employed  without  interest  the  laborer  must 
also  work  without  wages.  It  is  unnecessary  to  say  that  such  a 
state  of  things  is  nowhere  to  be  found  in  the  industrial  world,  not 
even  under  slavery.  In  every  industry  we  can  find  capital  em- 
ployed without  interest,  but  in  no  industry  can  we  find  labor 
working  without  wages. 

Since  capital  is  frequently  used  without  interest,  and  labor 
never  used  without  wages,  it  is  manifestly  incorrect  to  say  the 
rate  of  wages  is  determined  by  or  equal  to  the  rate  of  interest  ; 
and  since  both  the  rate  of  wages  and  interest  vary  in  different 
industries,  and  vary  in  different  localities  in  the  same  industry,  it 
cannot  possibly  be  true  that  "  the  same  prices  as  are  paid  in  these 
cases  for  labor  and  for  the  use  of  capital  are  also  paid  for  them  in 
all  their  other  employments." 

The  only  really  important  point  in  Mr.  Wood's  argument  is  the 
recognition  of  the  fact  that  capital  can  only  be  successfully  em- 
ployed when  it  is  cheaper  than  labor  as  a  means  of  production,  a 
fact  hitherto  generally  overlooked. 

Since  social  progress  chiefly  depends  upon  increasing  the 
quantity  and  reducing  the  cost  of  wealth,  and  this  in  turn  depends 
upon  the  use  of  capital  in  production,  a  correct  understanding  of 
the  law  governing  the  economic  use  of  capital  is  of  the  utmost 

1  Cf.  chapter  iv.  ;  also  author's  article,  Political  Science  Quarterly,  vol.  iii., 
No.  3,  pp.  385-408. 


CONFOUNDING    WAGES    WITH  PROFITS.    .  19! 

importance  to  economic  science.  As  already  explained,1  that 
which  undersells  always  succeeds,  and  that  which  succeeds  establishes 
the  methods  by  which  its  success  is  accomplished  j  consequently,  the 
principle  upon  which  capital  can  be  successfully  employed  in 
production  is  its  relative  cheapness  as  a  productive  factor. 

The  fact  that  "  as  between  two  methods  of  obtaining  the  same 
result,  cheapness  is  the  sole  guide,"  is  clear  to  Mr.  Wood,  but  its 
economic  significance  he  has  evidently  failed  to  recognize.  Like 
the  orthodox  economists,  he  sees  that  the  use  of  capital  is  the 
only  means  of  permanently  cheapening  wealth.  And  he  further 
sees  what  they  did  not,  namely  :  that  capital  can  only  be  em- 
ployed when  it  furnishes  productive  force  cheaper  than  labor  ; 
but  the  principle  upon  which  capital  becomes  cheaper  than  labor 
he  appears  to  be  no  nearer  understanding  than  was  Adam  Smith, 
Gregory  King,  or  Thomas  Munn.  The  chief  difficulty  with  Dr. 
Wood  is  that  he  fails  to  distinguish  between  the  economic 
character  of  labor  and  capital  and  consequently  confounds  the 
price  of  labor  with  interest  or  profit  which  are  fundamentally 
different. 

The  price  of  labor,  like  that  of  all  necessary  factors  in  production, 
is  determined  by  its  own  cost  and  not  by  interest,  nor  any  thing 
relating  to  capital.  The  use  of  capital  depends  upon  the  cost  of 
labor  in  two  ways — its  cost  as  a  factor  in  production,  and  its 
expensiveness  as  an  element  in  consumption.  While  capital  can 
never  be  employed  unless  it  can  work  cheaper  than  labor,  it  can 
only  do  so  when  it  is  accompanied  by  new  employment  creat- 
ing conditions  which  nothing  but  an  enlarged  general  consumption 
and  higher  wages  can  supply.  Moreover,  a  general  rate  of  wages 
and  profits  in  all  industries,  such  as  Wood  struggles  to  explain, 
is  nowhere  to  be  found.  The  rate  of  wages  tends  to  uniformity 
only  within  specific  industrial  groups.  In  such  countries  as  India 
and  China  and  to  some  extent  in  Russia  and  Austria,  among 
purely  agricultural  producers,  there  is  the  nearest  approximation 
to  a  general  rate  of  wages,  because  there  industrial  differentiation 
is  at  the  minimum.  But  in  proportion  as  the  division  of  labor 
and  the  complexity  of  industrial  and  social  relations  increase,  a 
general  rate  of  wages  becomes  impossible,  because  distinctive 
industrial  groups  bring  different  rates  of  wages  into  existence. 
1  Part  II.,  chapter  i. 


192  .        NO    UNIFORMITY  OF  PROFITS. 

For  example,  the  wages  of  spinners,  weavers,  carpenters,  masons, 
tailors,  etc.,  will  tend  to  a  uniform  rate  for  each  industry  in  the 
same  market  or  locality,  but  that  uniformity  does  not  extend 
throughout  the  country.  Accordingly,  we  find  that  the  wages  for 
the  same  occupation  in  New  York  City  are  very  much  higher  than 
in  rural  districts  and  country  villages,  for  the  obvious  reason  that 
the  cost  of  supplying  the  labor-power  is  greater  in  the  former 
than  in  the  latter  places. 

Therefore  while  wages  and  prices  always  tend  to  a  uniformity, 
it  is  a  uniformity  for  the  same  quality  in  the  same  market.  But 
even  this  is  in  no  sense  true  of  profits  ;  on  the  contrary,  all  the 
force  of  self-interest  and  economic  law  tend  to  make  profits  move 
in  the  opposite  direction.  The  reason  for  this  is  very  simple. 
Profits  being  the  net  surplus  after  all  costs  are  paid,  it  is  because 
prices  tend  to  a  uniformity  that  a  variation  in  the  cost  makes 
profits  possible,  and  therefore  the  greater  the  variation  in  the  cost 
of  production  per  unit  of  product,  the  greater  the  variation  in  the 
profits.  And  conversely  the  more  uniform  the  cost  of  production 
per  unit,  the  more  uniform  and  the  smaller  the  maximum  amount 
of  profit.  Instead  of  profits  tending  towards  a  uniformity,  they 
tend  towards  diversity,  varying  from  zero  up,  in  proportion  as 
the  complexity  in  productive  methods  and  variety  in  the  cost  per 
unit  increases. 

SECTION  II. — Professor  Clark's  Theory. 

In  a  recent  monograph  '  Professor  Clark  presents  a  theory  of 
wages  which,  if  not  new,  has  some  new  features  in  it.  The  fun- 
damental point  in  this  theory  is,  that  the  price  of  all  factors  in 
production  is  determined  by  what  the  last  and  no-rent  increment 
can  produce,  which  when  applied  to  labor  is,  that  the  general 
rate  of  wages  is  determined  by  what  the  laborer  could  produce 
"  empty-handed  "  or  with  such  land  and  tools  as  can  be  had  for 
nothing. 

As  a  theory  of  wages  this  is  essentially  the  doctrine  of  Henry 

1  A  paper  on  the  "  Possibility  of  a  Scientific  Law  of  Wages,"  read  before  the 
Third  Annual  Meeting  of  the  American  Economic  Association,  in  Philadelphia, 
December  27,  1888.  "  Publications  American  Economic  Association,"  vol.  iv., 
No.  I. 


CLARK'S    THEORY  STATED.  193 

George,  which  we  have  shown  to  be  contrary  to  all  experience.1 
Mr.  Clark,  however,  seems  to  think  the  fallacies  which  we  exposed 
in  the  theory  of  Mr.  George  are  not  due  to  the  principle  of  the 
doctrine,  but  result  from  a  too  restricted  application  of  it. 

Instead  of  limiting  the  theory  to  no-rent  land,  as  George  does, 
he  extends  it  to  no-rent  instruments  in  all  departments  of  the 
social  working-field.*  This  theory  affirms  :  (i)  that  there  is  a 
no-rent  point  at  which  every  productive  factor  is  employed  ;  (2) 
that  this  marginal  or  no-rent  place  is  where  the  price  of  using  all 
productive  instruments  is  determined  ;  (3)  that  this  price-fixing 
portion  of  the  supply  is  always  the  last  increment  that  is  brought 
into  use — hence,  "the  men  who  fix  the  standard  of  wages  are  in 
the  rear  rank,  not  in  the  front  "  ;  (4)  that  the  wages  of  the  last 
or  price-fixing  increment  depend  upon  the  proportion  between 
the  number  of  laborers  and  the  amount  of  capital  employed  ;  and 
consequently,  that  wages  can  only  be  advanced  in  proportion  as 
capital  increases  faster  than  labor. 

1.  Is  it  correct  to  say  that  there  is  a  no-rent  point  in  the  use 
of  all  productive  factors  ?     Something  depends  here  upon  what 
is  meant  by  the  phrase  "  no-rent."     If  by  rent  he  means  the  cost 
of  maintaining  the  instrument  unimpaired,  then  the  statement  is 
manifestly  incorrect.     In  this  sense  a  permanent  no-rent  use  of 
any  productive  factor  is  impossible,  since  its  wear  and  tear  would 
soon  cause  its  total  destruction.     If,  however,  by  rent  he  means 
that  which  the  owner  obtains  in  addition  to  maintaining  its  pro- 
ductive efficiency  unimpaired,  the  statement  is  unexceptionable. 
Regarding  rent  in  the  sense  of  net  surplus,  there  is  unquestion- 
ably a  no-rent  point  at  which  every  productive  factor,  including 
labor,  is  employed.' 

2.  Whether  or  not  it  is  correct  to  say  that  the  price  of  using 
the  productive  instruments  is  determined  at  the  no-rent  (no-sur- 
plus) point,  depends  upon  the  sense  in  which  the  word  "  price  " 
is  used.     If  by  the  price  of  using  productive  instruments  is  meant 
the  expense  of  maintaining   their   productive  efficiency,   which 

1  "  Wealth  and  Progress,"  Part  II.,  chap,  i.,  sec.  iii. 

*  "  The  true  margin  of  cultivation — more  accurately  that  of  utilization — is 
not  wholly  nor  chiefly  an  agricultural  thing  ;  it  extends  throughout  the  indus- 
trial system.  .  .  .  There  is  a  margin  of  utilization  in  cotton  spinning,  in 
iron-smelting,  in  shop-keeping." — Pp.  44,  45. 

3  Part  III.,  chapter  iii. 


194         HE   COMMITS    THE   SAME  ERROR  AS  MARX. 

constitutes  a  necessary  part  of  the  cost  of  production,  and  is  paid 
by  the  consumer  in  the  price  of  the  product,  there  can  be  no 
exception  to  the  statement.  But  if  by  the  price  of  using  produc- 
tive instruments  is  meant  the  rent  of  land,  and  the  profit  or 
interest  of  capital,  or  the  savings  of  labor,  in  short,  surplus 
incomes  none  of  which  enters  the  cost  of  production,  then  the 
statement  would  be  manifestly  incorrect.  Instead  of  these  being 
determined  at  the  price  of  no-rent  use,  they  are  always  deter- 
mined by  variations  from  it.1  It  would  indeed  be  a  contradiction 
in  terms  to  say  surplus  incomes  are  determined  by  no-surplus 
uses. 

3.  The  third  proposition  will  be  found  to  be  much  less  satis- 
factory. In  affirming  that  the  last  increment  added  to  the  supply 
is  the  price-determining  increment,  Prof.  Clark  has  made  a  ques- 
tionable application  of  his  argument.  He  here  confounds  the 
last  with  the  dearest  increment  as  if  they  were  quite  equivalent 
expressions.  In  doing  this  he  has  committed  precisely  the  same 
mistake  that  Marx  made  in  following  Ricardo  and  confounding 
the  quantity  with  the  cost  of  labor  as  the  determining  factor  in 
value.  When  Ricardo  said  "  the  value  of  commodities  is  deter- 
mined by  the  quantity  of  labor  devoted  to  their  production,"  he 
really  meant  the  cost  of  that  labor.  But  he  erroneously  assumed 
that  a  given  quantity  of  labor  always  represents  the  same  cost 3  ; 
hence,  the  cost  and  quantity  at  any  given  time  are  equivalent 
expressions.  Marx  literally  accepted  Ricardo's  expression,  "  the 
quantity  of  labor  "  without  regard  to  its  cost,  the  logical  applica- 
tion of  which  led  directly  to  the  colossal  error  of  declaring  that 
profits  are  exploitation  of  labor,  an  error  which  the  adoption  of 
the  other  form  of  expression,  "  cost  of  labor,"  would  have  entirely 
obviated.3 

The  position  of  Prof.  Clark  is  another  instance  of  the  same 
kind.  Ricardo's  theory jof  rent,  which  is  the  evident  basis  of  his 
doctrine,  affirms  that  the  last  increment  of  land  brought  into  cul- 
tivation is  always  the  no-rent  and  hence  the  price-determining 
portion.  The  idea  he  endeavors  to  apply  to  the  whole  sphere  of 

1  See  Part  III.,  chap.  iv. 

2  See  "  Political  Economy  and  Taxation,"  ch.  i.,  sec.  ii.  and  iii. 

*  See  article  on  "  Economic  Basis  of  Socialism,"  Political  Science  Quarterly 
for  December,  1889. 


THE  LAST-INCREMENT  FALLACY.  195 

price  phenomena.  He  assumes  that  the  price  of  all  productive 
instruments  is  determined  by  the  no-rent  increment,  and  that  this 
is  always  the  increment  which  is  brought  into  use  last.  It  is  here 
that  the  element  of  error  enters  the  doctrine  and  invalidates  it  as 
a  scientific  theory  of  prices,  either  of  labor  or  of  commodities. 
In  making  the  last  increment  of  land  the  rent-fixing  increment, 
Ricardo  confounded  the  last  with  the  dearest  increment,  exactly 
as  in  the  previous  case  he  confounded  the  quantity  with  the  cost 
of  labor.  The  real  reason  Ricardo  held  that  the  rent  of  all  land 
was  fixed  by  the  last  increment  brought  under  cultivation  was, 
because  he  erroneously  assumed  that  the  last  increment  was 
always  the  poorest  and  therefore  the  dearest.  Here  as  in  the 
former  case  he  assumed  that  the  two  were  equivalent  expressions 
but  always  spoke  of  the  "  last."  Prof.  Clark  like  Marx  accepts 
the  literal  form  rather  than  the  interior  meaning  of  Ricardo's 
expressions  and  with  similarly  fatal  consequences. 

It  can  easily  be  shown  that  this  "  last-increment "  theory  is 
inconsistent  with  the  facts,  alike  in  regard  to  land,  capital,  and 
labor.  It  is  well  known  that  Ricardo's  assumed  order  of  cultiva- 
tion is  entirely  unhistoric.  Instead  of  the  best  land  always  being 
used  first  and  the  poorest  last,  the  reverse  order  more  frequently 
occurs.  For  instance,  when  the  land  brought  into  cultivation  last 
will  yield  more  for  the  same  investment  than  that  already  culti- 
vated, as  is  often  the  case,  the  price  of  the  product  will  not  fall  to 
the  cost  of  production  on  this  last  land,  because  in  that  case  all 
the  previously  cultivated  land  would  be  thrown  out  of  use  by 
making  the  price  so  low  as  to  render  its  cultivation  impossible. 
If  the  product  of  all  the  land  under  cultivation  is  needed,  the 
price  must  be  high  enough  at  least  to  enable  the  poorest  portion 
to  be  cultivated  without  paying  rent.  Thus  while  the  poorest 
portion  will  be  the  price-fixing  and  no-rent  increment,  it  will  not 
be  the  last,  but  the  last  increment,  being  the  best  or  better  than  the 
poorest,  will  be  a  rent-paying  and  not  the  price-fixing  increment. 

Having  confused  the  last  with  the  dearest  increment,  Prof. 
Clark's  argument  from  this  point  on,  like  that  of  Marx,  leads 
directly  to  error  in  proportion  to  the  consistency  with  which  it  is 
pursued. 

He  says  "  it  is  a  familiar  commercial  principle  that  the  last 
increment  of  the  supply  of  any  commodity  fixes  the  general  price 


196  A   NEW  ELEMENT  OF  CONFUSION. 

of  that  article."  Instead  of  that  principle  being  familiar  in 
commerce  and  manufacture,  it  is  even  less  true  there  than  in  the 
case  of  land.  There  is  no  fact  better  established  in  the  history 
of  manufacture  than  that  it  is  the  oldest,  poorest,  and  hence  the 
dearest  machinery  and  methods  which  yield  no  profits.  It  is  the 
water-wheel  factory,  the  small  mules  and  slow  looms  that  occupy 
the  no-profit  or  minimum  profit  position.  The  new  factories 
with  the  most  modern  improvements  are  those  which  yield  the 
greatest  profits,  because  they  can  sell  at  the  same  price  while 
producing  at  a  less  cost  than  their  price-fixing  competitor. 
In  manufacture  and  commerce,  therefore,  instead  of  being  the 
\  last  it  is  usually  the  first  or  oldest  instruments  'in  use  which 
fix  the  price;  but  whether  the  oldest  or  newest,  it  is  always 
the  dearest. 

According  to  the  last-increment  theory,  wages  will  always  be 
determined  by  "  the  last  laborers  added  to  the  social  working 
force." '  If  we  observe  the  history  of  the  mobility  of  the  laborer 
whether  it  be  from  industry  to  industry,  from  locality  to  locality, 
or  from  nation  to  nation,  we  shall  find,  except  in  a  few  rare 
instances,  that  those  who  enter  any  given  working  field  last  are 
the  most  inexperienced,  incompetent,  and  poor.  It  is  the  effort 
to  improve  their  condition  that  induces  people  to  change  their 
country,  locality,  or  occupation.  That  is  why  emigration  is  always 
from  lower  to  higher  wage-paying  countries,  why  mechanics 
seldom  become  farmers,  but  agricultural  laborers  are  constantly 
entering  the  factory  and  farmers'  sons  deserting  the  farms  for  the 
cities.  The  laborer  who  leaves  his  country  or  industry  may  be 
and  probably  often  is  one  of  the  dearest  of  the  class  he  leaves,  but 
he  is  usually  among  the  cheapest  in  the  class  he  enters.  If  the 
poorest  laborer  fixed  the  wages  when  a  new  man  entered  any 
class,  the  wages  of  all  in  that  class  would  fall  to  his  level. 

The  statement  that  the  standard  of  wages  is  fixed  by  "  the  actual 
product  created  by  ...  the  men  who  run  no-rent  machinery  " 
introduces  a  new  element  of  confusion.  The  men  who  run  the 
no-rent  machinery  are  not  necessarily  the  last  comers  in  that  in- 
dustry. This  is  really  confounding  the  price  of  the  laborer  with 
that  of  the  product.  Other  things  being  the  same,  the  use  of  the 
poorest  instruments  will  determine  the  no-profit  and  price-fixing 

1  "  Possibility  of  a  Scientific  Law  of  Wages,"  p.  49.  2  Ibid.,  p.  49. 


CONFOUNDING    WAGES    WITH  RENT.  IQ7 

point  of  commodities,  because  in  that  case  the  quality  of  the  in- 
struments affects  the  cost  of  production.  But  this  is  not  true  of 
labor  ;  since  the  instruments  are  not  used  in  producing  labor- 
power,  its  cost,  and  hence  its  price,  cannot  be  affected  by  their 
quality.  As  productive  instruments  are  only  used  in  creating 
commodities,  it  is  the  price  of  commodities  alone  that  can  be 
affected  by  the  quality  of  such  instruments.  The  price  of  the 
instruments  may  have  been  affected  by  that  of  the  previous  labor 
which  was  employed  in  their  production,  but  when  used  as  in- 
struments in  production  in  conjunction  with  labor  they  are  both 
simply  items  in  the  cost  of  producing  a  future  product,  whose 
price  is  fixed  by 'them  and  not  theirs  by  it.  For  the  same  reason 
that  the  price  of  raw  material  is  not  determined  by  the  finished 
product  into  which  it  enters,  but  by  the  price  of  what  enters  into 
it,  the  price  of  labor  power  does  not  depend  upon  the  price  of 
what  it  produces,  but  upon  the  price  of  what  it  consumes — i.e., 
the  cost  of  its  own  production.  Upon  no  other  principle  would 
the  product  made  by  the  poorest  tools  be  the  dearest,  and  hence 
the  no-profit  portion. 

Therefore,  instead  of  the  price  of  labor  being  determined  by 
the  quality  of  the  instrument  it  uses,  it  is  the  price  of  the  result- 
ant product  only  that  is  so  affected.  The  fact  that  the  entrepre- 
neur who  uses  the  poorest  tools  has  to  pay  wages  as  high  as 
those  who  use  the  best,  prevents  him  from  having  any  profit.  As 
a  matter  of  fact  the  laborer's  wages  do  not  grade  up  and  down 
according  to  the  superiority  and  inferiority  of  the  instruments  he 
uses.  It  is  only  profits  which  thus  vary,  and  the  reason  they  do 
so  is  because  wages  do  not. 

Another  source  of  confusion  is  the  mistake  of  regarding  wages 
as  sustaining  the  same  relation  to  labor  that  rent  does  to  land 
and  that  profit  does  to  capital.  This  it  will  be  remembered  was 
one  of  the  chief  errors  in  Dr.  Wood's  argument,  and  Prof.  Clark 
seems  not  entirely  to  have  escaped  it.  Although  for  a  time  he 
seems  to  treat  wages  as  identical  with  prices,  in  his  grand  formula 
he  treats  wages  as  governed  by  the  same  law  as  profits  and  rent,1 

"  The  earnings  of  capital  (profits  and  rent)  are  subject  to  identically  the 
same  law  as  those  of  labor  ;  they  are  fixed  by  the  product  of  the  last  increment 
that  is  brought  into  the  field." — "  Possibility  of  a  Scientific  Law  of  Wages," 
P-  53- 


198  PRICE  AND   SURPLUSAGE. 

which  is  entirely  erroneous.  In  the  use  of  both  capital  and  land, 
that  which  is  necessary  to  replace  the  wear  and  tear  is  not  profit 
or  rent  but  necessary  cost.  It  does  not  go  to  the  owner  of  the 
land  or  capital,  but  is  all  consumed  in  maintaining  its  productive 
efficiency.  Wherever  land  or  capital  is  employed,  and  the  prod- 
uct is  only  equal  to  this  necessary  cost,  there  will  be  no  profits 
or  rent.  In  the  case  of  labor  all  this  is  different.  All  the  laborer 
receives  is  wages,  whether  it  is  cost  or  surplus.  Whether  the 
laborer  receives  what  will  barely  maintain  his  economic  efficiency 
or  a  third  more  than  that  amount  it  is  all  wages  because  it  is  all 
in  the  price  of  his  labor. 

In  every  class  of  labor  under  wage  conditions  there  are  some 
laborers  who  work  at  the  bare  cost  point,  and  others  who  have  a 
surplus.  There  is  also  land  that  is  used  at  cost  point  and  yields 
no  rent  or  surplus,  and  land  that  yields  a  rent.1  So  too  of  capi- 
tal ;  there  is  some  that  is  used  without  profit  and  some  that 
yields  a  profit.  Now  those  laborers  who  have  no  surplus  above 
their  cost  of  living  receive  wages,  and  as  high  wages  too  as  those 
of  their  class  who  have  a  surplus.  But  the  owners  of  land  and 
capital  which  only  yields  the  cost  of  their  use  do  not  receive  a 
surplus  as  rent  or  profit.  To  say  profit  and  rent  are  governed 
by  the  same  law  as  labor  is  to  confound  the  law  of  prices  with 
the  law  of  surplus.  Wages  are  the  price  of  labor  and  are  gov- 
erned by  the  same  law  as  the  price  of  land,  gold,  or  shoes. 
Profit  and  rent,  like  the  laborer's  savings,  are  all  surpluses  and 
are  governed  by  the  law  of  surplus.  The  correct  statement 
therefore  is  this  :  the  surplus  or  savings  from  wages,  rent  of  land, 
and  profit  of  capital,  are  all  governed  by  the  same  law — the  law 
of  economic  surplusage ;  and  the  wages  of  labor,  the  price  of 
land,  and  of  commodities  are  governed  by  the  same  law,  namely, 
the  law  of  economic  prices. 

4.     The  fourth  proposition  is  the  natural  outcome  of  the  third. 

1  In  using  the  expression  "  no-rent,"  the  existence  of  no-rent  land  and  no- 
profit  instruments,  is  assumed.  If  however  a  state  of  society  should  be  reached 
where  no-rent  land  does  not  exist,  that  would  not  in  the  least  militate  against 
the  law.  It  would  then  be  the  minimum-rent  land  or  tools  that  occupy  the 
price-fixing  position.  Indeed  the  prefix  "  no  "  should  always  be  taken  to  mean 
"  minimum."  Then  where  no-rent  land  or  capital  exists  the  statement  is  cor- 
rect, and  where  they  do  not  exist  it  is  the  minimum-rent  land  or  capital  that  is 
referred  to. 


DEFECTS  OF  CLARK'S    THEORY.  199 

•* 

The  doctrine  which  makes  the  laborer's  income  depend  upon  the 
quality  of  his  tools  naturally  leads  to  the  conclusion  that  wages 
depend  upon  capital.  Hence  it  is  not  surprising  that  Mr.  Clark 
falls  back  into  the  fold  of  pure  wage-fundism  which  makes  the 
progress  of  the  laborer  subsequent  to  and  dependent  upon  that 
of  the  capitalist.  He  says  :  "  The  sole  hope  of  this  multitude 
(the  working  class)  lies  in  an  advance  of  the  margin  of  the  field 
of  capital,  and  in  the  retirement  of  the  margin  of  the  field  of 
labor.  By  this  twofold  action  only  can  wages  rise  with  great 
rapidity,  but  the  movement  of  its  margins  is  possible  only  by 
means  of  a  considerable  excess  of  the  supply  of  capital  unbal- 
anced by  labor."  '  This  contains  the  essence  of  about  all  the 
heresy  of  orthodox  economics.  It  makes  man  depend  upon 
wealth  instead  of  making  wealth  depend  upon  man. 

Whatever  the  merits  of  this  theory  may  be,  it  has  three  serious 
defects  :  (i)  in  assuming  that  prices  are  determined  by  the  last 
instead  of  by  the  dearest  increment  of  the  supply  ;  (2)  in  treat- 
ing wages  as  a  share  of  the  division  of  the  product  instead  of  a 
necessary  item  in  the  cost  of  its  production  ;  (3)  in  putting  wages 
in  the  same  economic  category  with  rent  and  profit  instead  of  in 
the  category  of  prices.  The  natural  result  is  to  confound  wages 
with  profits,  misplace  the  price-determining  factor,  and  finally 
invert  the  economic  relation  of  capital  and  labor. 

1  "  Possibility  of  a  Scientific  Law  of  Wages,"  p.  59. 


CHAPTER  III. 

THE  LAW  OF  WAGES. 

SECTION   I. —  The   Test  of  a  Scientific   Law  of  Wages. 

A  SCIENTIFIC  law  of  wages  must  afford  a  rational  explanation 
of  all  normal  wage  phenomena.  It  must  explain  what  wages 
are,  why  they  are  paid,  and  how  their  amount  is  determined.  It 
must  explain  why  the  rate  of  wages  varies  in  the  same  industries 
in  different  countries  and  localities,  and  why  it  differs  in  different 
industries  in  the  same  localities  ;  why  the  wages  in  agriculture 
are  always  lower  than  those  of  manufacturing  industries  in  the 
same  country  ;  why  in  the  same  industries  and  localities  the 
wages  of  women  are  lower  than  those  of  men  ;  and  why  in  all 
industries  a  portion  of  the  laborers  can  save  money  while  others 
of  their  class  can  scarcely  make  both  ends  meet.  In  proportion 
as  any  theory  fails  to  account  for  these  constantly  recurring 
facts,  it  must  be  deemed  insufficient  to  explain  the  economic  law 
of  wages. 

In  considering  the  theories  of  others  I  have  applied  this  test, 
and  to  the  extent  that  they  fail  to  fulfil  its  requirements,  I  have 
not  hesitated  to  pronounce  them  incomplete  or  unsound.1  All 
that  I  ask  is  that  the  theory  presented  in  this  chapter  shall  be 
judged  by  the  same  standard  ;  and  if  it  fails  to  fulfil  the  require- 
ments exacted  from  others,  it  must  share  the  same  fate,  and  vice 
versa.  In  order  to  avoid  confusion  it  is  important  at  the  outset 
that  we  definitely  understand  what  the  term  wages  is  intended  to 
mean. 

1  The  criticism  of  the  wages-fund  theory,  Professor  Walker's  theory,  and 
Henry  George's  theory  will  be  found  in  "  Wealth  and  Progress,"  Part  II., 
chap.  i.  ;  and  that  of  Dr.  Wood  and  Professor  Clark  in  the  preceding  chapter. 


CHARACTER   OF   THE    WAGES-SYSTEM.  2OI 

SECTION  II. — Definition  of  Wages. 

In  the  first  place,  the  phrase  wages  has  no  economic  meaning 
except  under  wage  conditions  ;  that  is  to  say,  under  conditions 
where  the  laborer's  income  consists  of  a  specific  amount  paid  by 
another  for  his  service  as  such.  Strictly  speaking,  wages  are 
economically  the  price  of  labor.  For  instance,  if  a  man  works  for 
himself,  and  either  sells  or  consumes  the  product  of  his  labor, 
what  he  receives  will  not  be  wages  ;  it  will  be  the  result  of  his 
labor,  but  that  will  consist  of  the  product  he  created,  whether 
little  or  much,  good  or  bad,  or  indifferent,  but  it  will  not  be  the 
price  of  his  labor.  Nothing  can  properly  be  regarded  as  having 
a  price  which  is  not  subject  to  the  conditions  of  exchange — i.e., 
is  not  bought  and  sold.  When  a  man  owns  and  sells  the  products 
of  his  labor,  the  product  has  a  price  but  his  labor  has  not,  because 
as  labor  it  has  not  entered  the  sphere  of  exchange,  and  hence  is 
not  subject  to  the  law  of  prices. 

So  too  in  slavery,  where  the  laborer  owns  neither  his  labor  nor 
his  product.  Here  the  product  is  bought  and  sold,  and  hence 
has  a  price,  but  the  labor-power  as  such  is  not  exchanged  ;  it  is 
the  laborer  himself  that  is  bought  and  sold.  We  do  not  buy  the 
labor  of  the  horse  or  the  engine.  It  is  true  that  the  motive  for 
buying  the  horse  or  engine  is  to  obtain  their  productive  power, 
but  in  order  to  obtain  that  power  we  have  to  buy  that  in  which 
it  is  produced.  Under  slavery  the  laborer  is  economically  iden- 
tical with  the  horse  or  the  engine.  It  is  he  and  not  his  labor- 
power  that  is  bought  and  sold.  The  difference  in  the  two 
systems,  then,  may  be  stated  thus  :  under  slavery  the  laborer  is  a 
commodity  ;  under  the  wages-system  it  is  only  his  labor-power  or 
service  that  is  a  commodity.  With  this  change  came  a  marked 
social  distinction  ;  under  wage  conditions,  the  capitalist,  instead 
of  buying  and  selling  laborers  as  under  slavery,  buys  service  and 
sells  products,  and  the  laborer  sells  service  and  buys  products. 
Thus  the  laborer  ceases  to  be  a  commodity  and  becomes  a  distinct 
social  unit  who  buys  and  sells,  and  economic  price  is  transferred 
from  his  personality  to  his  labor-power.  It  is  only  under  condi- 
tions where  the  laborer  is  personally,  socially,  and  politically  free 
and  sells  his  service  as  such,  that  wages  can  properly  be  said  to 
exist.  The  price  at  which  service  under  such  conditions  is  sold 
by  the  laborer  is  wages. 


2O2  REAL  AND  NOMINAL    WAGES. 

It  is  therefore  not  the  amount  received,  but  the  way  in  which 
it  is  received  that  constitutes  it  wages.  Whether  the  amount  be 
a  hundred  dollars  a  year  or  a  hundred  dollars  a  week  makes  no 
economic  difference.  There  is  nothing  in  the  nature  of  wages  as 
such  to  prevent  them  from  being  increased  to  any  amount.  The 
essential  characteristic  of  wages  is  that  they  constitute  a  definite 
as  distinguished  from  a  contingent  income.  It  will  be  observed 
that  this  definition  of  wages  includes  the  incomes  of  all,  without 
regard  to  sex  or  social  status,  who  sell  their  service  for  a  stipu- 
lated amount.  The  term  wages,  then,  as  it  will  be  used  through- 
out this  book,  means  neither  more  nor  less  than  the  price  of  'labor '. 

In  the  text-books  there  is  usually  considerable  discussion  about 
nominal  and  real  wages.  This,  however,  need  detain  us  but 
a  moment.  Nominal  wages  simply  mean  the  price  that  is  paid 
for  a  given  amount  of  service  expressed  in  the  currency  or  money 
of  the  community.  Real  wages  mean  the  actual  amount  of 
wealth  or  social  well-being  obtainable  for  a  day's  labor.  Nominal 
wages  are  of  no  special  account  except  as  a  mode  of  expressing 
real  wages.1  In  considering  the  law  of  wages,  therefore,  the 
question  is  not  how  is  the  laborer's  income  determined  when  he 
works  for  himself,  nor  how  it  is  determined  when  he  is  personally 
the  property  of  another,  but  how  his  income  is  determined  when 
he  voluntarily  sells  his  service  as  service.  What  the  employer 
pays  to  the  laborer  is  not  in  any  sense  a  division  of  the  product, 
but  it  is  wholly  an  expenditure  in  purchasing  the  means  of  pro- 
duction. Thus  labor  (not  the  laborer)  is  in  exactly  the  same 
economic  category  as  raw  material,  machinery,  or  any  other  pro- 
ductive factor.  For  instance,  when  the  manufacturer  has  pro- 
duced a  thousand  yards  of  cotton  cloth  he  does  not  divide  it 
with  his  laborers  either  practically  or  theoretically  ;  on  the  con- 
trary, all  the  wages  for  producing  that  cloth,  including  those 
involved  in  producing  the  raw  material  and  machinery,  have 
already  been  paid.  They  constitute  a  part  of  the  cost,  and  hence 
the  value  of  the  cloth.  Whether  or  not  the  manufacturer  will 
gain  or  lose  by  the  transaction  is  a  subsequent  matter,  and 
entirely  depends  upon  whether  he  can  produce  the  cloth  at  as 
small  a  cost  as  his  most  incompetent  competitor. 

The  economic  claim  of  the  laborer  therefore  is  to  a  definite 
price  for  his  labor,  and  not  to  a  proportional  share  of  the  prod- 
•  '  "  Wealth  and  Progress,"  pp.  75,  76,  96,  97,  98. 


WAGES   THE  PRICE   OF  LABOR.  203 

uct.  This  really  constitutes  the  economic  difference  between 
wages  and  rent,  interest  and  profit,  and  is  the  distinction  already 
pointed  out  between  price  and  surplus.  If  the  laborer  were  a 
claimant  to  a  given  proportional  share  of  the  product,  the  size 
of  his  income  would  depend  upon  the  quantity  produced,  and 
would  thus  become  a  contingent  instead  of  a  stipulated  amount. 
In  short  he  would  be  working  in  partnership  and  not  working  for 
wages.  As  before  stated,  the  essential  characteristic  of  the 
wages  system  is  that  the  laborer  is  not  a  commercial  partner  ;  he 
has  no  ownership  in  the  finished  product.  His  economic  posi- 
tion is  to  sell  labor  and  buy  products,  and  that  of  the  entrepreneur 
is  to  buy  labor  and  sell  products.  Obviously  then  the  laborer  sells 
his  productive  power  to  the  employer  at  a  stipulated  price  ;  he 
has  no  more  claim  to  a  proportional  share  of  the  product  than 
have  those  who  sell  raw  material  or  machinery.  The  law  of  wages, 
then,  is  the  law  of  the  economic  price  of  labor. 

Therefore,  in  considering  the  law  of  wages  the  question  is  not 
what  proportion  of  the  product  belongs  to  the  laborer,  but  how 
the  price  of  -his  labor  is  economically  determined.  When  we 
have  discovered  the  law  by  which  the  price  of  labor  is  governed, 
we  shall  be  in  a  position  to  consider  how  that  price  (wages)  can 
be  increased. 

SECTION  III. —  The  Law  of  Wages. 

One  of  the  essential  conditions  of  a  scientific  law  of  prices  is 
that  it  must  be  applicable  to  all  price  phenomena.  Wages  being 
simply  the  price  of  labor,  must  be  governed  by  the  same  law 
as  the  price  of  commodities.  Consequently  if  the  formula  of  the 
law  of  prices  presented  in  a  previous  chapter '  is  correct,  we  have 
only  to  apply  that  theory  to  labor  in  order  to  find  the  economic 
law  of  wages.  If  it  does  not  explain  the  movement  of  wages  as 
completely  as  it  accounts  for  the  price  of  commodities,  we  may 
safely  conclude  that  it  fails  to  fulfil  the  requirements  of  a  scientific 
law. 

This  law  it  will  be  remembered  is  :  That  economic  prices  con- 
stantly tend  toward  the  cost  of  furnishing  the  most  expensive  portion 
of  the  necessary  supply  in  any  given  market ;  and  that  this  tendency 
increases  directly  as  the  impediments  to  free  economic  movement  are 
diminished. 

1  Part  II.,  chap.  iv. 


2O4 


ECONOMIC  LAW  OF    WAGES. 


'Applied  to  labor  then,  this  law  is  :  That  wages  tend  to  move 
towards  the  cost  of  furnishing  the  most  expensive  portion  of  the  neces- 
sary supply  of  labor-power  in  any  given  market ;  and  that  this  ten- 
dency increases  directly  as  the  individual  freedom  and  mobility  of  the 
laborer  advances. 

By  the  cost  of  a  thing  is  meant  not  what  it  may  have  cost 
somebody  else  or  would  cost  under  any  other  conditions,  but 
Avhat  its  owner  actually  gave  for  it  or  would  have  to  pay  to  re- 
place it.  The  cost  of  labor-power  then,  is  what  it  cost  the  laborer 
to  furnish  it.  Obviously  the  cost  of  labor-power  to  the  laborer  is 
the  cost  of  his  maintenance  or  living.  The  cost  of  the  laborer's 
living,  however,  is  not  limited  to  the  simple  maintenance  of  the 
individual  laborer,  but  it  includes  all  that  enters  into  the  neces- 
sary expenses  of  his  social  life.  Since  the  maintenance  of  the 
family  of  the  married  man  is  as  much  a  part  of  his  necessary  cost 
of  living  as  his  individual  food  and  shelter,  it  is  an  indispensable 
item  in  the  cost  of  supplying  his  labor  power.  Therefore  the  fam- 
ily and  not  the  individual  is  the  economic  unit  in  the  labor  market. 

The  law  of  wages  then,  may  be  more  correctly  stated  thus  : 
The  rate  of  wages  in  any  country,  class,  or  industry  constantly  tends 
towards  the  cost  of  living  of  the  most  expensive  families J  who  furnish 
a  necessary  part  of  the  supply  of  labor  in  that  country,  class,  or  in- 
dustry, as  shown  in  the  following  diagram  : 

NO.    I. 


0  C. 

5  c. 

IO  C. 

15  c. 

20  C. 

25  c. 

$2 
$2 
$2 
$2 
$2 
$2 

Maximum  cost       

$° 

A 
B 

C 
D 
E 
F. 

$1.95 
90 
Sour 
of 

vings. 

ce 

*T 

$1.85 

80    .  -. 

Sa 

$1 

Minimum  cost       .      $1.75 

SAVINGS. 

WAGES. 

ACTUAL  COST. 

COST    REDUCED 

BY 

CHEAP  LIVING. 

The  reason  wages  in  any  class  or  industry  are  thus  adjusted  to 
the  standard  of  living  of  the  most  expensive  families  is  exactly 
the  same  as  that  which  we  saw  caused  the  price  of  commodities 

1  By  the  most  expensive  families  is  not  meant  the  most  expensive  single 
family,  but  the  most  expensive  ten  or  twenty  per  cent,  of  the  class  whose  labor 
is  required. 


COST  OF  LIVING    THE  BASIS  OF    WAGES.  2O$ 

to  be  adjusted  to  the  cost  of  producing  the  most  expensive  por- 
tion of  the  supply.  We  saw  that  the  price  of  commodities  tends 
to  a  uniformity,  because  the  lowest  price  at  which  one  producer 
would  sell  was  the  highest  at  which  the  consumer  would  buy. 
This  uniformity,  through  the  pressure  of  the  consumer  to  buy  at 
the  minimum,  tends  to  be  adjusted  at  the  lowest  point  the  pro- 
ducer can  afford  to  sell,  which  is  at  cost.  And  since  the  price 
tends  to  uniformity  at  cost,  wherever  the  cost  varies,  the  uni- 
formity necessarily  takes  place  at  the  cost  of  the  dearest  incre- 
ment. 

This  is  equally  true  of  labor,  and  for  precisely  the  same  rea- 
son. Upon  the  same  principle  that  the  producer  cannot  or 
will  not  consent  to  continuously  sell  a  commodity  for  less  than 
it  cost  him  to  produce  it,  or  than  it  will  cost  him  to  replace  it, 
the  laborer  cannot  or  will  not  long  consent  to  sell  his  service  for 
less  than  it  costs  him  (and  his  family)  to  live.  He  will,  as  ex- 
perience shows,  often  work  for  less  than  would  supply  him  with 
exceptional  comforts  and  luxuries,  but  he  will  not  continuously 
work  for  less  than  will  furnish  him  with  those  things  which  by 
constant  repetition  and  the  force  of  habit  have  become  necessi- 
ties. Rather  than  forego  these  he  will  refuse  to  work,  and  will 
inaugurate  strikes,  riots,  and  other  means  of  endangering  the 
peace  and  prosperity  of  the  community. 

If  two  dollars  per  day  is  the  minimum  amount  upon  which  a  cer- 
tain portion  of  a  given  class  of  laborers  can  or  will  consent  peace- 
fully to  live,  then  that  amount  must  be  paid  them  in  order  to  ob- 
tain their  labor.  What  the  most  expensive  portion  of  a  given  class 
must  receive,  the  others  may  and  will  receive.  We  know  that  the 
general  rate  of  wages  in  the  same  .industry  and  locality  is  nearly 
uniform.  We  know,  for  instance  that  weavers,  spinners,  shoe- 
makers, carpenters,  bricklayers,  etc.,  working  in  the  same  shop 
or  factory  or  on  the  same  job,  get  the  same  rate  of  pay  for  work 
at  their  respective  trades  whether  they  are  single  or  married,  have 
large  or  small  families,  or  live  more  or  less  expensively  than  their 
fellow-laborers.  We  also  know,  for  reasons  already  given,  that 
the  most  expensive  among  them  must  obtain  for  his  service  what 
will  supply  his  family  with  what  they  regard  as  necessities.  What 
will  be  sufficient  to  supply  the  urgent  necessities  of  the  most  ex- 
pensive portion  of  any  class  of  laborers,  to  induce  them  to  con- 
tinue to  work,  will  furnish  all  those  whose  cost  of  living  is  less, 


2O6 


RELATION  OF  CAPITAL  AND  LABOR. 


with  a  margin  proportionate  to  the  difference  which  may  be  saved 
or  spent  in  what  to  them  are  luxuries. 

Thus  through  the  law  of  price  uniformity,  by  which  the  cost  of 
producing  the  most  expensive  portion  determines  the  general 
price  of  the  commodity  in  that  market,  the  minimum  amount 
upon  which  the  most  expensive  laborers  in  any  class  or  industry 
will  consent  to  live  and  continue  at  work,  determines  the  rate  of 
wages  in  that  class. 

.There  is  one  important  distinction,  however,  between  these  two 
classes  of  price  phenomena  which  should  not  be  overlooked.  Al- 
though all  prices  are  governed  by  the  same  general  law,  the  price 
of  commodities  and  of  labor  move  in  opposite  directions.  While 
the  dearest  capitalist  and  the  dearest  laborer  both  fix  the  prices 
for  their  class,  they  occupy  relatively  opposite  positions.  The 
manufacturers  who  furnish  the  most  expensive  portion  of  the  sup- 
ply of  commodities  are  the  poorest  and  lowest  in  their  class,  while 
the  laborers  who  furnish  the  most  expensive  portion  of  labor- 
power  are  the  best  and  highest  in  their  class,  as  shown  in  the  ac- 
companying diagram  : 

NO.  2. 


PROFIT. 

PRICE. 

ACTUAL  COST. 

COST  SAVED 
BY  CAPITAL. 

F 
E 
D 
C 

B 
A 

1C. 

|c. 
fc. 

o  c. 

4c. 
4  c. 
46. 

4c. 
4c. 
40. 

Minimum  cost  .     .     .     3c. 
.  ^ 

Source 
-c.           of 

3fc.      P 
.    ^ic. 

rofits. 

fc.|  ; 

.     4c. 

,     3- 

Maximum  cost  

0  C. 

5  c. 

IO  C. 

15  c. 

20  C. 

25  c. 

$2 
$2 
$2 
$2 
$2 
$1 

Maximum  cost  

$2 

A 

B 
C 
D 
E 
F 

.  $1. 

95 

,      .  fti.oo 

TI-85       Source 
80  ~       of 
Savings. 

$i 

Minimum  cost    .     .     $1.75 

SAVINGS. 

WAGES. 

ACTUAL  COST. 

COST  REDUCED 

BY 

CHEAP  LIVING. 

DEARER  LABORERS  HELP  THE  CHEAPER.     2O/ 

Here  it  will  be  observed  the  movements  are  all  exactly  the 
same  as  in  the  case  of  commodities  (diagram  No.  i),  but  the 
relative  positions  of  all  are  reversed.  Laborer  A,  like  capitalist 
A,  is  the  dearest.  His  labor-power  cost  him  $2  a  day,  and  he 
sells  it  for  $2  a  day,  and  has  no  surplus  ;  but  instead  of  being  at 
the  bottom  of  his  class,  he  is  at  the  top.  The  wages  of  laborer 

A,  like  the  price  of  manufacturer  A,   are  the  same  as,  and  fix, 
those  of  all  the  others.    Just  as  the  cost  of  living  of  the  laborers  A, 

B,  C,  D,  E,  and  F  recedes  from  the  cost  line  of  A  on  the  right, 
does  their  net-surplus  (or  the  possibility  of  it)  increase  in  the 
savings  column  on  the  left.     That  is  to  say,  in  proportion  as  any 
of  the  other  laborers  live  upon  less  than  A  they  are  enabled  to 
sell  their  labor  for  more  than  it  actually  cost  them.    And  the  dif- 
ference, which  in  the  case  of  the  entrepreneur  was  profit,  -consti- 
tutes a  net-surplus  for  the  laborer  either  to  be  saved,  expended 
upon  luxuries,  or  for  any  purpose  whatsoever.     Thus  the  lowest 
laborers  are  enabled  to  obtain  wages  higher  than  the  cost  of  their 
own  labor,  because  the  dearest  laborers  are  compelled  to  demand 
a  higher  price  for  their  labor-power  in  order  to  obtain  the  equiva- 
lent of  its  cost. 

The  relative  positions  of  the  laborer  and  capitalist  being  the 
inverse  of  each  other,  it  will  be  seen  that  it  is  the  most  advanced 
laborer  and  the  poorest  capitalist  who  have  no  surplus.  The  rea- 
son for  this  is  that  in  the  progress  of  society  the  movement  of 
the  price  of  commodities  is  downwards,  while  that  in  the  price  of 
labor  is  upwards.  That  is  to  say,  the  dearest  laborer  occupies  the 
top  and  progressive  position,  while  the  dearest  capitalist  occupies 
the  bottom  and  receding  position.  The  surplus  of  the  less 
expensive  laborers  is  the  advantage  they  receive  from  the  struggles 
of  their  most  expensive  brethren.  We  have  thus  a  law  of  wages 
which  is  not  limited  to  any  special  industry,  country,  or  period, 
but  whose  application  is  as  universal  as  the  existence  of  wage 
conditions.1 

If  wages  are  governed  by  the  cost  or  standard  of  living,  it  will 
of  course  follow  that  wages  will  always  be  the  highest  where  the 
socially  established  standard  of  living  among  the  laborers  is  the 
most  complex  and  expensive  ;  and,  conversely,  they  will  be  the 

1  See  chapter  on  the  Universality  of  the  Law  of  Wages.  "  Wealth  and 
Progress,"  p.  162. 


208  WAGES  IN  DIFFERENT  COUNTRIES. 

lowest  where  the  standard  of  living  is  the  most  simple  and  in- 
expensive,— and  this  is  precisely  what  we  find  the  world  over.1 
We  no  sooner  recognize  this  than  the  reason  why  the  wages  of 
the  Asiatic  are  lower  than  those  of  the  European  becomes  obvi- 
ous. The  same  difference,  and  for  the  same  reason,  exists 
between  wages  paid  in  similar  industries  in  Continental  countries 
and  in  England,  and  between  those  in  England  and  America. 
The  testimony  of  history  is,  that  in  all  countries  wages  in  the 
same  industries  have  always  been  higher  in  large  cities  than  in 
small  ones,  and  so  has  the  cost  of  living,  which  generally  implies 
greater  social  advancement  and  general  intelligence. 

This  view  is  further  emphasized  by  the  fact  that  the  industrial 
centres  of  the  world  have,  from  the  dawn  of  human  history,  been 
the  birthplaces  of  freedom  and  the  nurseries  of  civilization.2 
Upon  this  principle  we  have  no  difficulty  in  understanding  why 
the  wages  of  agricultural  laborers  are  always  lower  than  those  of 
mechanics,  and  why,  as  is  universally  the  case,  agricultural  wages 
are  higher  in  the  vicinity  of  large  cities  and  towns  than  in  out- 
lying districts.3  It  is  because  the  wants  of  the  agricultural  class 
are  fewer,  their  social  life  simpler,  and  their  standard  of  living 
lower.  As  a  necessary  part  of  this  same  fact,  we  find  that  agri- 
cultural laborers  are  always  in  the  rear  ranks  of  social  advance- 
ment, and  are  the  last  to  acquire  industrial  and  political  rights. 

The  difference  between  the  wages  of  women  and  those  of  men 
in  the  same  industry  is  due  to  the  same  cause  ;  it  is  an  entire 
mistake  to  assume,  as  some  do,  that  the  lower  wages  received  by 
women  are  due  to  their  inferior  ability.  If  wages  were  determined 
by  the  skill  and  competency  of  the  laborer,  then  the  carpenter, 
mason,  painter,  or  compositor  in  the  country  town  with  equal 
skill  would  get  the  same  wages  as  those  in  the  large  cities.  And 
laborers  of  equal  skill  in  different  industries  in  Pekin,  Tokio,  St. 
Petersburg,  and  Constantinople  would  obtain  the  same  wages  as 
those  in  New  York  City,  whereas  we  know  that  the  common 
laborer  of  New  York  obtains  higher  wages  than  the  most  skilled 
mechanics  in  most  of  the  former  places. 

Nor  are  the  lower  wages  of  women  caused  by  difference  in  sex, 

1  "  Wealth  and  Progress,"  Part  II.,  chapters  iii.  and  vii. 

"Part  I.,  chapter  v.     Also,   "Wealth  and  Progress,"  pp.  116-119. 

s  "Wealth  and  Progress,"  pp.  163-166. 


SA  VINOS-BANK  DEPOSITS. 

since  in  that  case  the  wages  of  men  everywhere  would  be  higher 
than  those  of  women  anywhere,  which  is  by  no  means  the  case. 
The  wages  of  women  in  America  are  as  high  as  those  of 
men  in  the  same  industry  in  any  other  country,  and,  with  the 
exception  of  England,  and  perhaps  Paris,  are  actually  higher. 
Obviously,  then,  the  wages  of  women,  like  those  of  men,  do  not 
conform  to  the  fact  of  personal  skill  nor  to  that  of  sex,  but  they 
do  everywhere  conform  to  cost  of  living.  As  elsewhere  shown,1 
the  average  woman's  cost  of  living  is  very  much  smaller  than 
that  of  the  average  man,  and  her  wages  are  correspondingly 
lower.  The  wages  of  women  are  lower  than  those  of  men  for  the 
same  reason  that  the  wages  of  agricultural  laborers  are  lower  than 
those  of  mechanics  in  the  large  cities,  and  wages  for  the  same  kinds 
of  labor  in  Moscow  or  Constantinople  are  lower  than  in  Paris, 
London,  or  New  York.  In  short,  the  wages  of  women  are  gov- 
erned by  the  same  law  as  those  of  men,  namely,  the  cost  of 
living,  and  the  only  reason  the  wages  of  women  are  lower  than 
those  of  men  is  because  women  cost  less. 

Another  fact,  of  which  no  theory  of  wages  hitherto  presented 
affords  any  satisfactory  explanation,  is  the  savings-bank  deposits 
of  wage-earners.  Since  these  deposits — to  the  extent  that  they  are 
saved  from  wages — represent  a  net-surplus  above  the  necessary 
cost  of  living,  they  are  usually  taken  as  conclusive  evidence  of 
high  wages.  They  are  frequently  treated  as  a  kind  of  wage 
thermometer,  the  rate  of  wages  or  social  condition  of  the  laborers 
being  regarded  high  or  low  as  savings-bank  deposits  are  large  or 
small.  The  correctness  of  this  conclusion  is  commonly  accepted 
as  self-evident,  and  it  is  frequently  cited  as  a  conclusive  proof 
of  the  wisdom  of  an  existing  or  proposed  industrial  or  political 
policy. 

The  last  presidential  election  in  this  country  (1888)  may  be 
cited  as  an  example  of  this.  In  order  to  show  the  striking  contrast 
between  the  wages  and  social  conditions  of  the  laborers  in  this 
country  and  England,  one  of  our  most  popular  statesmen  cited 
the  fact  that  the  savings-bank  deposits  in  Massachusetts,  with 
2,000,000  population,  are  nearly  two  thirds  as  much  as  those  of 

1  For  the  further  discussion  of  this  point  and  the  facts  relating  to  the  wages 
and  the  cost  of  living  of  women,  the  reader  is  referred  to  "  Wealth  and  Prog- 
ress," pp.  172-178. 
14 


2IO  SAVINGS  NO   CRITERION  OF    IV AGES. 

Great  Britain  with  a  population  of  38,000,000,  or  over  eleven 
times  as  much  per  capita  of  the  population.  This  statement  was 
accepted  as  showing  the  difference  in  the  wages  and  material 
prosperity  of  the  laborers  in  the  two  countries.  A  more  mis- 
leading statement  it  would  be  difficult  to  imagine,  as  a  little  exam- 
ination of  the  subject  will  conclusively  show. 

Although  the  economic  and  social  conditions  of  the  American 
laborer  are  decidedly  superior  to  those  of  his  English  brother, 
this  fact  cannot  be  established  by  savings-bank  statistics.  Nor 
is  the  difference  between  the  wages  in  the  two  countries  any- 
where near  so  great  as  the  difference  in  the  amount  of  savings- 
bank  deposits  would  indicate.  If  we  compare  the  savings- 
bank  deposits  of  the  different  States  in  this  country  the  utter 
worthlessness  of  such  data,  for  showing  the  difference  in  the  rate 
of  wages,  will  at  once  be  apparent. 

According  to  the  official  savings-bank  statistics  in  1887,  the 
deposits  per  capita  of  the  population  were  :  in  Rhode  Island, 
$169.41;  in  Massachusetts,  $147.30  ;  in  Connecticut,  $147.18; 
in  New  Hampshire,  $125.52  ;  in  New  York,  $89.05  ;  while  in 
Pennsylvania  they  were  only  $10.81  per  capita.  In  Ohio  they 
were  $4.32,  in  Minnesota  $2.17,  and  in  Wisconsin  only  .02  cents, 
and  in  a  large  number  of  the  Western  States  there  are  no 
savings-banks  at  all.  Now,  if  there  is  any  virtue  in  savings- 
bank  statistics  as  indicating  the  rate  of  wages  and  the  industrial 
condition  of  the  community,  the  laborers  in  New  York  State  are 
only  a  little  over  half  as  well  off  as  those  in  Rhode  Island,  and 
less  than  two  thirds  as  well  off  as  those  in  Massachusetts,  Con- 
necticut, or  New  Hampshire,  while  in  Pennsylvania  the  condition 
of  the  laborer  would  only  be  about  one  sixteenth  as  good  as  it  is 
in  Rhode  Island. 

According  to  this  notion  the  laborers  of  Italy  are  as  well  off  as 
those  in  Pennsylvania,  and  vastly  better  than  those  of  Ohio,  Il- 
linois, Minnesota,  Wisconsin,  or  any  of  the  Middle  and  Western 
States,  except  California.  A  theory  by  which  $4.32  per  capita  in 
Ohio,  $2.17  in  Minnesota,  .02  cents  in  Wisconsin,  and  other 
Western  States,  as  compared  with  $169.41  per  capita  in  Rhode 
Island,  are  taken  to  represent  the  wages  and  social  condition  of 
the  laboring  classes  in  those  States,  bears  upon  its  face  the  evi- 
dence of  its  own  absurdity.  Why  the  laborers  of  Rhode  Island, 


THE    SOURCE    OF  SAVINGS.  211 

Massachusetts,  Connecticut,  and  New  Hampshire  should  be  able 
to  save  a  third  more  per  capita  than  those  in  New  York,1  fourteen 
times  as  much  as  those  of  Pennsylvania,  thirty-four  times  as 
much  as  those  of  Ohio,  sixty-eight  times  as  much  as  those  in 
Minnesota,  and  several  hundred  times  as  much  as  those  in 
Wisconsin  and  other  States,  is  a  complete  enigma  from  the 
standpoint  of  any  of  the  popular  theories  of  wages,  yet  they 
are  phenomena  which  a  scientific  law  of  wages  is  bound  to 
explain. 

In  the  light  of  the  theory  here  presented,  however,  these  facts 
assume  an  entirely  normal  role  and  become  perfectly  explainable. 
In  the  first  place,  the  laborers'  savings-bank  deposits,  like  the 
accumulations  of  any  other  class,  are  entirely  of  the  nature  of  a 
surplus,2  and  therefore,  like  rents  and  profits,  are  governed  by  the 
law  of  surplusage.  It  will  be  observed  that  the  surplus,  which 
alone  makes  savings-bank  deposits  possible,  is  simply  the  differ- 
ence between  the  cost  of  living  of  the  most  expensive  families  of 
any  given  class  or  industry  and  those  who,  for  whatever  reason, 
live  upon  less.  Thus  wages  may  be  very  high,  and  still  the  pos- 
sible surplus  be  very  small,  and  vice  versa. 

For  example,  if  wages  in  a  given  class  or  industry  were  $3.00 
a  day,  and  the  established  standard  of  living  in  that  class  was 
substantially  uniform,  the  possibility  of  saving  would  be  very 
slight,  because  the  cost  of  living  of  each  family  would  be  practi- 
cally equal  to,  and  hence  consume,  the  entire  wages.  Under 
those  conditions  savings  would  be  impossible,  except  to  unmar- 
ried persons  or  those  whose  families  were  smaller  than  the  largest, 
which  at  best  would  afford  but  a  small  amount  of  surplus  for  the 
class  in  general.  Moreover,  the  possibility  of  savings  from  that 
cause  would  exist  in  any  class,  whatever  the  rate  of  wages.  On 
the  other  hand,  suppose  that  in  a  given  industry  the  general  rate 
of  wages  fixed  by  the  dearest  laborers  is  $1.50  a  day,  but  instead 
of  the  standard  of  living  being  uniform  throughout  the  class,  it 
greatly  varies  through  the  difference  in  the  social  habits,  as  is 
actually  the  case  in  this  country  where  American,  English,  Irish, 
French-Canadian,  and  Continental  laborers  are  all  employed  in 

1  Savings-bank  deposits  in  Italy  amount  to  $9.00  per  capita  of  the  popula- 
tion.     Cf.  Political  Science  Quarterly,  vol.  iv.,  pp.  483,  493. 
8  See  diagram  No.  2.,  p.  206. 


212         AGRICULTURE    UNFAVORABLE    TO   SAVINGS. 

the  same  industry.  Many  of  these  foreign  laborers,  through  their 
simpler  habits  of  life,  will  be  able  to  live  on  one  half  or  two  thirds 
as  much  as  the  American  or  English  laborer,  and  hence  will  be 
able  to  save  the  difference.  With  this  variation  in  the  cost  of 
living  to  different  persons  at  the  same  rate  of  wages,  a  much 
larger  proportion  of  savings  per  capita  will  be  possible  than  in  the 
former  case,  where  wages  were  one  hundred  per  cent,  higher. 

That  is  precisely  what  exists  in  this  country,  and  particularly  in 
the  New  England  States  and  manufacturing  centres.  From  this 
point  of  view  there  is  no  difficulty  in  understanding  why  savings- 
bank  deposits  per  capita  are  much  smaller  in  the  Western  than 
in  the  Eastern  States.  In  the  Western  States  agriculture  is  the 
chief  occupation.  It  is  well  known  that  agricultural  life  is  more 
nearly  uniform  than  that  of  any  other  occupation.  Being  iso- 
lating in  its  influence,  it  affords  the  minimum  incentive  for  n.ew 
wants  and  a  variety  of  social  demands.  Consequently,  whatever 
rate  of  wages  prevails,  savings  will  necessarily  be  very  slight  in 
agricultural  communities,  while  they  might  be  relatively  large  in 
manufacturing  centres,  even  with  the  same  rate  of  wages.  Indeed 
the  savings-bank  deposits  in  Italy  are  derived  from  wages  much 
smaller  than  those  in  our  Western  States,  where  no  savings-banks 
exist. 

The  same  is  true  of  the  different  States  in  this  country.  Wis- 
consin, where  the  savings  are  but  two  cents  per  capita,  is  more 
exclusively  agricultural  than  Minnesota,  where  they  are  $2  ;  and 
Ohio  is  more  agricultural  than  Pennsylvania,1  and  Pennsylvania 
than  New  York.  In  New  England  however  the  reverse  is  true. 
In  Rhode  Island,  Massachusetts,  and  Connecticut  there  is  the 
minimum  amount  of  agriculture  and  the  maximum  amount  of 
manufacture.  Consequently  they  have  a  greater  concentration 
of  population  and  variety  of  social  life  among  their  wage  classes. 
In  addition  to  this,  they  have  the  greatest  number  of  different 
nationalities  engaged  in  the  same  occupation,  thus  greatly  in- 
creasing the  differences  in  the  standard  of  living  while  the  same 
wage  level  prevails. 

If  we  turn  to  England  we  find  a  very  different  state  of  affairs. 

1  For  social  purposes,  mining  and  raw-material-producing  industries  may  be 
regarded  as  agriculture,  because  they  are  similarly  isolating  and  non-socializing 
occupations. 


WHY  FOREIGN  LABORERS  CAN  SAVE.  21$ 

There  the  population  is  highly  homogeneous  ;  hence,  in  each 
class  there  is  a  greater  uniformity  of  social  habits  and  cost  of 
living,  and  therefore  less  surplus  from  the  same  aggregate  income 
— that  is  to  say,  there  are  none  of  those  arbitrary  differences  in 
the  style  of  living  in  the  same  class  occasioned  by  an  influx  of  for- 
eigners as  in  this  country.  The  differences  in  the  standard  of 
living  there,  in  the  main,  are  only  such  as  arise  from  the  differ- 
ence in  the  size  of  families  and  the  passing  from  one  social  grade 
to  another.  From  the  causes  already  explained,1  whenever 
laborers  migrate  from  one  industry  or  social  grade  to  another, 
while  they  frequently  represent  the  top  or  most  expensive  portion 
of  the  class  they  leave,  they  usually  represent  the  bottom,  or  least 
expensive,  of  that  into  which  they  enter.  Just  as  fast  as  they  are 
transferred  from  a  position  where  they  are  the  dearest  to  one 
where  they  are  the  cheapest,  they  are  changed  from  a  wage-fixing 
to  a  surplus-receiving  position.  The  savings-bank  deposits  will 
naturally  therefore,  be  much  smaller  per  capita  in  a  homogeneous 
country  like  England  than  in  a  heterogeneous  country  like  Amer- 
ica, even  though  the  wages  were  the  same  in  both  countries. 
Savings  are  not  due  to  the  amount  of  the  wages,  but  to  dif- 
ferences in  the  cost  of  living  in  the  class  where  the  same  rate  of 
wages  prevails. 

This  explains  why  such  a  large  proportion  of  the  laborers  in 
this  country  who  have  bank  accounts  which  is  so  commonly  re- 
garded as  conclusive  evidence  of  superior  character,  are  foreigners. 
If  the  possession  of  a  bank  account,  or  the  ownership  of  what  is 
so  patronizingly  styled  "  a  little  home  " — often  a  mere  shanty, — 
is  evidence  of  superior  character,  why  did  they  not  have  them 
in  their  own  country,  where  that  "  superior  character  "  was  de- 
veloped ?  It  may  be  replied  that  it  is  because  wages  there  were 
too  low  to  leave  a  margin  above  what  would  give  them  a  bare 
living.  Precisely  so  ;  but  why  was  there  no  margin  in  their  own 
country  ?  Why  is  there  no  margin  for  the  best  class  of  Chinamen 
in  China,  of  Germans  in  Germany,  Englishmen  in  England,  and 
Americans  in  America,  while  there  is  a  margin  in  almost  any 
country  in  Continental  Europe  for  the  Asiatic,  in  England  for  the 
Continental  laborer,  and  in  the  United  States  for  the  laborers  of 
every  other  country  in  the  world  ?  The  answer  is  obvious.  There 

1  Section  ii.,  preceding  chapter. 


214  WHY  HIGHEST  PAID  LABORERS  STRIKE. 

is  no  margin  from  which  the  best  class  of  laborers  can  save  in 
their  own  country,  simply  because  there  the  general  rate  of  wages 
is  determined  by  their  own  standard  of  living.  They  can  get 
wages  which  will  leave  them  a  margin  over  the  cost  of  living,  only 
by  going  where  the  price  of  labor  is  determined  by  a  social  char- 
acter and  standard  of  living  higher  than  their  own,  or,  if  in  their 
own  country,  by  adopting  a  standard  of  living  lower  than  the 
highest  of  the  class  to  which  they  socially  belong. 

The  fact  that  the  lower  thus  always  obtain  the  advantage 
acquired  by  the  higher  is  the  economic  incentive  for  all  indus- 
trial mobility.  It  is  only  because  the  laborer  can  obtain  the 
higher  wages  previously  established  in  the  new  country  or  indus- 
try, that  he  will  ever  undertake  to  face  the  disadvantages  of 
emigrating  to  a  foreign  land  or  endure  the  inconvenience  of 
entering  into  a  new  occupation.  This  law  also  explains  why, 
throughout  the  history  of  industrial  progress,  the  most  intelligent 
and  socially  advanced  laborers  always  constitute  the  discon- 
tented element  in  their  class,  and  are  usually  the  leaders  in  labor 
organizations,  strikes,  and  other  forms  of  industrial  agitation.  It 
is  because  being  the  most  expensive  of  their  class  they  have  no 
margins  and  therefore  experience  the  greatest  pressure  from  the 
non-satisfaction  of  new  wants  and  desires. 

The  effect  of  the  earnings  of  women  and  children  upon  the 
wages  of  men  is  another  fact  which  the  prevailing  theories  of 
wages  have  entirely  failed  to  explain.  Extensive  investigations 
have  shown  that  in  those  industries  where  women  and  children 
contribute  to  the  families'  maintenance,  the  wages  of  the  men 
tend  to  fall  directly  as  the  amount  contributed  by  the  women  and 
children  increases.1  If  it  is  simply  a  question  of  supply  and 
demand,  as  is  generally  assumed,  the  competition  of  women  and 
children  for  employment  would  tend  to  reduce  the  wages  of  all 
laborers  ;  because  as  laborers  increase  in  one  industry  they  would 
migrate  to  others,  and  thus  the  effect  would  be  the  general  reduc- 
tion of  the  rate  of  wages.  Such,  however,  is  not  the  case.  The 
effect  is  mainly  upon  the  wages  of  the  man  in  the  class  where  the 
women  who  work  are  a  part  of  the  same  household.  Thus  we 
find  that  in  the  same  social  grade  and  locality,  in  the  trades 
where  the  man  supports  the  whole  family,  his  wages  are  fully  as 

1  For  the  facts  upon  this  point  see  "  Wealth  and  Progress,"  pp.  167  and  172. 


FATHER'S    WAGES  AND  FAMILY'S  INCREASE.       21$ 

high  as  those  of  the  whole  family  where  the  wife  and  one  or  two 
children  contribute  to  the  family's  support. 

A  table  will  elsewhere  be  found '  constructed  from  the  indi- 
vidual statements  of  wages  and  cost  of  living  of  three  hundred 
and  ninety-seven  families  employed  in  ten  different  industries  in 
Massachusetts.  These  facts  show  that  the  total  yearly  income  of 
the  family  in  the  highest  class  was  $821.40,  and  cost  of  living 
$772.21,  and  in  the  lowest  the  total  income  was  $682.05  and  cost 
of  living  was  $650.81.  In  the  highest  class  where  the  women 
and  children  who  work  were  only  as  one  fourth  of  one  to  a 
family,  the  wages  of  the  man  were  $752.36.  In  the  lowest  class 
where  the  women  and  children  who  work  were  as  one  and  one 
third  to  a  family,  the  man's  wages  were  only  $424.12.  In  other 
words,  in  those  industries  where  the  women  and  children  con- 
tribute only  $69  a  year,  the  wages  of  the  man  were  only  $19  less 
than  the  total  cost  of  the  family's  living,  whereas  in  the  indus- 
tries where  the  earnings  of  the  women  and  children  were  $257  a 
year,  the  wages  of  the  man  were  $226  less  than  the  total  cost  of 
the  family's  living.  It  will  thus  be  seen  that  while  the  difference 
between  the  total  income  of  the  family  in  the  highest  and  lowest 
class  was  almost  exactly  the  same  as  that  in  the  total  cost  of  the 
family's  living,  the  difference  in  the  highest  and  lowest  yearly 
wages  of  the  man  was  greater  than  that  in  the  cost  of  living  by 
almost  exactly  the  amount  of  the  difference  in  the  earnings  of  the 
women  and  children.  That  is  to  say,  while  the  total  income  of 
the  family  varied  with  the  total  cost  of  the  family's  living,  the 
ratio  of  the  man's  wages  to  the  cost  of  the  family's  living  dimin- 
ished directly  as  the  total  earnings  of  the  women  and  children 
increased.2  Thus  whether  the  income  of  the  family  is  all  de- 
rived from  one  source  or  from  several  sources,  its  total  amount 
tends  to  equal  the  total  cost  of  the  family's  living. 

Therefore,  from  whatever  standpoint  we  study  the  move- 
ment of  wage  phenomena,  we  find  that  the  general  rate  of  wages 
in  any  country,  class  or  industry,  constantly  tends  to  equal  the 

"  Wealth  and  Progress,"  171. 

"  Thus,  it  is  seen  that  in  neither  of  the  cases  where  the  head  of  the  family 
is  assisted  by  his  wife  or  children,  does  he  earn  as  much  as  other  laborers. 
Also,  that  in  the  case  where  he  is  assisted  by  both  wife  and  children,  he  earns 
the  least." — Report  of  the  Bureau  of  the  Statistics  of  Labor,  Massachusetts, 
1876,  p.  71. 


2l6  COST  OF  LIVING  HOW  AFFECTED. 

cost  of  living  of  the  most  expensive  families  furnishing  the 
necessary  supply  of  labor. 

The  cost  of  living  may  be  affected  in  two  ways,  either  by  a 
change  in  the  price  of  the  commodities  which  the  laborer  con- 
sumes or  by  a  change  in  the  quantities  of  those  commodities 
which  enter  into  his  habitual  consumption.  An  increase  in  the  price 
of  commodities  would  be  a  rise  in  the  money  cost  of  living,  but 
not  a  rise  in  the  standard  of  living  ;  hence,  while  it  would  increase 
the  money  wages,  it  would  not  increase  the  amount  of  wealth  the 
laborer  receives  for  a  day's  labor.  It  would  therefore  be  a  rise 
in  nominal  wages,  but  not  a  rise  of  real  wages.1  An  increase  in 
the  cost  of  living,  arising  from  an  increase  in  the  commodities 
habitually  consumed  by  the  laborer,  would  constitute  a  rise  in  the 
standard  of  living.  It  would  increase  the  actual  amount  of  wealth 
daily  received  by  the  laborer,  and  hence  would  be  a  rise  of  real 
wages.  Thus  a  rise  in  the  cost  of  living  and  nominal  wages  is  of 
no  social  advantage  to  the  laborer  except  when  accompanied  by 
a  rise  in  the  standard  of  living  and  of  real  wages.3 

It  is  therefore  a  rise  in  the  actual  social  standard  and  not  in 
the  nominal  money  cost  of  living,  which  is  of  importance  in  con- 
sidering the  question  of  wages.  Indeed  it  is  in  the  minimizing  of 
the  money  cost  and  the  maximizing  of  the  social  standard  of 
living  that  industrial  and  social  progress  really  consists.  In 
other  words,  the  condition  of  the  laborer  improves  only  as  the 
price  of  commodities  falls  and  the  price  of  labor  rises.  The 
standard  of  living  in  any  class  or  country  depends  upon  the 
social  character  of  the  people.  Social  character  is  chiefly  deter- 
mined by  the  number  and  variety  of  established  social  wants, 
and  the  consequent  simplicity  or  complexity  of  social  relations.3 
It  may  therefore  be  said  that  wages  finally  depend  upon  the 
social  character  of  the  laboring  classes,  the  restriction  or  devel- 
opment of  which  is  mainly  determined  by  the  extent  and  perma- 
nence of  their  social  opportunities.  When  we  learn  to  regard 

1  "  Wealth  and  Progress,"  pp.  96-98. 

'This  law  is  just  as  true  in  "piece-work"  as  it  is  in  "day-work."  See 
chapter  on  "  Piece- Work,"  "  Wealth  and  Progress,"  p.  179. 

8  For  an  extended  discussion  of  the  relation  of  social  wants  and  character  to 
the  standard  of  living,  see  "  Wealth  and  Progress,"  Part  II.,  chap,  ix.,  pp. 
187-203. 


REMED  Y  FOR  LOW    WAGES.  2 1 J 

wages  simply  as  the  price  of  labor  which  is  governed  by  the 
laborer's  standard  of  living,  we  shall  see  that  the  laborer  is  not  poor 
because  the  capitalist  is  rich,  but  that  wages  are  low  because 
the  laborer  is  socially  cheap.  The  true  remedy  for  low  wages  : 
therefore  is  not  to  be  sought  in  profit-sharing,  nationalization  of 
land  and  productive  instruments,  or  in  any  other  schemes  for 
restricting  the  economic  opportunities  of  the  capitalist,  but  solely  in 
conditions  for  extending  the  social  opportunities  of  the  laborer. 


CHAPTER  IV. 

RENT,  ITS  LAW  AND  CAUSE. 
SECTION  I.— The  Definition  of  Rent. 

THE  definition  of  rent  generally  accepted  by  economists  is  that 
given  by  Ricardo,1  namely,  "  that  rent  is  that  portion  of  the  prod- 
uce, of  the  earth  which  is  paid  to  the  landlord  for  the  use  of  the 
original  and  indestructible  powers  of  the  soil."  2 

It  is  manifest  that  if  rent  is  limited  to  what  is  paid  for  "  the 
powers  of  the  soil,"  or  infertility  of  the  land,  then  what  is  paid 
for  land  used  for  building,  manufacturing,  and  commercial  pur- 
poses is  not  rent  at  all,  since  the  price  paid  for  such  land  is 
entirely  independent  of  the  quality  of  its  soil.  Moreover,  the 
rent  paid  for  some  of  the  most  sterile  land  for  building  purposes 
is  greater  than  that  paid  for  the  most  fertile  land  in  the  world. 
A  definition  of  rent  that  does  not  apply  to  land  which  pays  the 
highest  rent  of  all,  and  which  is  increasing  as  civilization 
advances,  musi-  surely  be  regarded  as  defective.  Nor  is  this 
definition  materially  improved  by  Mr.  Walker's  qualification  that 
the  expression  "  original  and  indestructible  powers  of  the  soil  " 
includes  "not  only  arable  land,  but  pasture  and  timber  land, 
mineral  deposits,  water  privileges,  and  building  sites."3  While 
in  this  case  it  includes  all  that  is  paid  for  the  "original  and 
indestructible  powers  "  of  any  kind  of  land,  it  fails  as  a  defini- 
tion of  rent,  because  as  we  shall  see  rent  is  never  paid  for  "  the 
original  and  indestructible  powers  "  of  any  land. 

It  is  true  that  some  agricultural  land  has  a  high  degree  of 
original  fertility,  but  there  is  no  land  whose  fertility  is  inde- 

1  "  Political  Economy  and  Taxation,"  pp.  34-36. 

"Walker's  "Political  Economy,"  p.  193.  Also,  McCulloch's  "Political 
Economy,"  p.  142. 

*  "  Political  Economy,"  p.  193. 

3X8 


RENT  IS  ECONOMIC  SURPLUS.  2 19 

structible.  Every  intelligent  farmer  knows  that  continuous 
cultivation  without  fertilization  will  impoverish  or  destroy  the 
fertility  of  the  most  productive  land  ever  known.  The  fertility 
of  land  is  not  only  always  destructible,  as  in  the  case  of  mines, 
but  it  is  frequently  not  original ;  indeed  much  of  the  most 
productive  agricultural  land  in  the  world  to-day  owes  its  fertility 
not  to  its  "  original  powers,"  but  almost  entirely  to  improvements 
created  by  the  application  of  labor  and  capital.  And  the  greater 
part  of  the  land  whose  fertility  is  thus  created  commands  a  higher 
rent  than  much  of  that  which  possesses  the  greatest  amount  of 
"  original  fertility."  ' 

In  the  case  of  land  for  building  purposes  alone,  the  so-called 
"powers  of  the  soil,"  or  qualities  of  the  land  for  which  rent  is 
paid,  are  neither  original  nor  indestructible.  Indeed  it  does 
not  depend  upon  any  quality  whatever  peculiar  to  land.  On 
the  contrary,  rent  is  entirely  due  to  the  presence  of  a  highly 
civilized  industrial  community.  If  New  York  City  were  removed 
a  hundred  miles  from  Manhattan  Island,  the  rent  of  the  greater 
part  of  the  land,  some  of  which  is  the  highest  paid  for  any  land 
in  the  world,  would  entirely  disappear.  Clearly  therefore,  if 
rent  is  limited  to  that  "  which  is  paid  to  the  landlord  for  the  use 
of  the  original  and  indestructible  powers  of  the  soil,"  almost 
none  of  the  income  from  land  is  rent,  since  a  very  small  portion 
of  such  income  is  paid  for  its  "  original  "  and  none  at  all  for  its 
"  indestructible  powers." 

The  chief  difficulty  with  this  definition  is  that  it  fails  to  dis- 
tinguish between  price  and  surplus.  Rent  is  not  the  price 
of  land  ;  it  is  only  the  economic  surplus  arising  from  its  use.  In 
order  to  avoid  confusion  I  define  rent  as  the  net  surplus  resulting 
from  the  productive  use  of  land  under  all  economic  conditions  for 
any  purpose  whatsoever.  To  explain  how  this  surplus  arises  is  to 
furnish  the  law  of  rent. 

SECTION  II. —  The  Law  of  Rent. 

Rent  being  an  economic  surplus,  in  seeking  the  law  of  rent  we 
are  simply  seeking  the  law  of  surplus  in  relation  to  the  produc- 

1  Witness  the  high  rents  paid  for  the  land  used  for  market-gardening  and  the 
highly  cultivated  farms  in  such  countries  as  Belgium  and  England,  whose  fer- 
tility is  largely  artificial,  and  the  low  rent  paid  for  the  most  fertile  land  in  our 
Western  States,  whose  productiveness  is  largely  original. 


220  ECONOMIC  PRODUCTION  OF  LAND. 

tive  use  of  land.  And  as  surplus  is  included  in  and  'received 
with  the  price,  it  being  the  difference  between  price  and  cost,  it 
follows  that  the  law  of  surplus  is  a  necessary  corollary  of  the  law 
of  price.  In  order,  therefore,  to  ascertain  the  law  of  rent,  we 
have  only  to  apply  to  land  the  general  law  of  prices  presented  in 
a  previous  chapter  l — namely,  that  in  a  given  market  prices  tend 
towards  uniformity  on  the  basis  of  the  cost  of  producing  the 
most  expensive  portion.  It  is  objected  by  some  that  since  land 
is  the  "  free  bounty  of  nature  "  it  can  have  no  cost  of  production. 
This  is  a  mistake.  It  should  be  remembered  that  economic  pro- 
duction does  not  mean  physical  creation  but  only  economic  and 
social  adaptation.  This  may  involve  a  great  deal  of  physical 
modification  both  in  form  and  location,  or  it  may  involve  little 
or  none  of  either. 

The  production  of  broadcloth  or  a  gold  watch  involves  a  great 
deal  of  physical  change  in  the  wool  and  in  the  gold,  steel,  and 
other  metals  of  which  the  cloth  and  watch  are  made,  whereas  the 
production  of  nuts  and  bananas  involves  very  little.  The  more 
nearly  complete  is  an  object  furnished  by  nature  the  less  will  be 
the  cost  involved  .jn  appropriating  it  to  human  uses,  and  vice 
versa.  The  cost  of  producing  a  power-loom  includes  all  the 
expenditure  necessary  to  complete  it  as  an  instrument  for  weav- 
ing. This  of  course  does  not  mean  the  creation  of  the  iron  or 
wood  of  which  the  loom  is  made,  but  only  their  adaptation  to 
productive  purposes.  It  is  in  this  sense  that  we  speak  of  the 
cost  of  producing  land,  the  term  production  having  not  a 
physical  but  only  an  economic  signification.  For  economic 
purposes  therefore,  the  cost  of  producing  land,  like  that  of  any 
other  productive  instrument,  includes  all  the  expenditure  neces- 
sary to  utilize  it  as  a  means  of  production. 

The  law  of  price  in  relation  to  land,  therefore,  may  be  stated 
thus  :  That  under  conditions  of  economic  freedom,  the  price  of 
land  in  any  given  community  tends  to  equal  the  cost  of  its  produc- 
tion— i.e.,  the  cost  of  actualizing  its  economic  and  social  utility. 
Hence  when  the  cost  per  unit  of  using  all  the  land  is  the  same, 
the  price  and  the  cost  of  production  (economic  use)  will  be  identi- 
cal, and  no  surplus  or  rent  will  remain.  And  whenever  the  cost 
per  unit  of  using  different  portions  of  land  varies,  the  price  per 

1  Part  II.,  chapter  iii. 


THE  LAW  OF  RENT.  221 

unit  will  tend  to  a  uniformity  on  the  basis  of  the  cost  of  actual- 
izing the  utility  of  the  most  expensive  portion  of  the  land  used 
for  that  purpose  in  that  community.  Thus  while  the  price  per 
unit  of  the  whole  land  in  that  community  tends  to  a  uniformity, 
that  of  the  portion  whose  utility  costs  the  most  to  actualize  it 
will  consist  entirely  of  cost,  and  that  of  the  others  will  consist  of 
cost  and  rent  (surplus),  the  rent  increasing  as  the  cost  of  utiliza- 
tion diminishes  below  that  of  the  most  expensive  portion  used. 

Having  found  the  law  of  prices  in  relation  to  land,  we  have  as 
a  necessary  corollary  the  law  of  surplus — i.e.,  the  law  of  rent.  It 
may  be  stated  as  follows  :  That  under  conditions  of  economic 
freedom,  the  rent  of  land  used  for  any  purpose  tends  to  equal  the 
difference  between  its  productive  utility  and  that  of  the  poorest 
land  used  for  the  same  purpose  in  that  community,  or  which  con- 
tributes to  the  necessary  supply  of  the  same  market. 

It  will  be  observed  that  the  conclusion  here  reached  is  sub- 
stantially the  same  as  that  of  Ricardo,  stripped  of  many  mislead- 
ing assumptions  by  which  the  Ricardian  theory  has  ever  been 
accompanied. 

In  the  first  place,  by  treating  rent  as  the  net  surplus  resulting 
from  the  productive  use  of  land,  we  entirely  avoid  the  error  in- 
volved in  the  Ricardian  definition  of  rent  as  the  price  paid  for 
"  the  original  and  indestructible  powers  of  the  soil."  And  by  re- 
garding land  simply  as  a  productive  instrument,  thereby  putting 
it  in  the  same  economic  category  with  other  forms  of  capital,  we 
remove  all  grounds  for  the  perplexing  controversy  as  to  whether 
the  income  from  improvements  in  land  is  properly  rent  or  profits. 
Since  rent  and  profits  are  both  economic  surpluses,  whether  or 
not  they  are  designated  by  the  same  term  is  a  matter  of  entire 
indifference.  We  also  avoid  the  confusing  consequences  of  that 
erroneous  assumption  of  Ricardo,  that  land  is  always  utilized  in 
the  order  of  its  fertility,  the  best  being  taken  first  and  the 
poorest  last,  an  assumption  which  Carey  devoted  tedious  space 
to  exposing,  and  which  Walker  and  other  Ricardians  are  still 
laboring  to  defend. 

From  the  point  of  view  here  presented,  it  is  absolutely  of  no 
importance  whether  the  land  is  cultivated  in  the  order  claimed 
by  Ricardo  or  that  claimed  by  Carey,  the  law  will  operate  the 
same  in  either  case.  If  the  inferior  land  were  used  before  the 


222  RENT  GOVERNED  BY  LAW  OF  SURPLUS. 

superior,  as  is  frequently  the  case,  the  only  difference  would  be 
this  :.  instead  of  the  land  employed  last  being  used  at  cost,  and 
that  employed  first  yielding  rent,  as  Ricardo  assumed,  the  order 
would  be  reversed  and  the  land  employed  first  would  be  used  at 
cost,  and  that  employed  last  would  yield  a  rent.  Neither  the 
amount  of  land  used  nor  the  amount  of  rent  paid  would  be 
affected  by  that  change.  The  difference  in  the  productive  utility 
of  the  land  will  be  rent  just  the  same,  whether  the  inferior  or  su- 
perior is  brought  first  into  use.  It  is  not  the  historical  order  of 
their  use,  but  the  difference  in  the  degree  of  their  productive 
utility,  that  determines  the  amount  of  the  rent.  The  difference 
in  the  fertility  of  two  pieces  of  land  yielding  twenty  and  twenty- 
five  bushels  of  wheat  respectively  will  obviously  be  just  as  great 
whichever  is  brought  into  use  first. 

If  the  subject  had  been  treated  from  the  point  of  view  here 
presented,  these  errors  would  have  been  avoided.  It  would  then 
have  been  obvious  that  the  order  of  use  of  superior  and  inferior 
land  has  no  necessary  relation  whatever  to  the  price-fixing  or  sur- 
plus-producing influence  of  either  labor,  land,  or  machinery.  For 
in  all  cases  and  under  all  conditions  where  economic  freedom 
prevails,  the  price  is  determined  by  the  cost  of  using  the  least 
effective,  and  therefore  the  most  expensive  increment,  and 
whether  that  be  first  or  last  makes  absolutely  no  difference.  By 
this  treatment  of  the  subject,  we  not  only  avoid  the  error  and  re- 
tain what  is  true  in  the  popular  theory,  but  we  have  a  consistent 
classification  of  economic  phenomena,  by  which  the  price  of  land 
commodities  and  labor  is  governed  by  the  law  of  price,  and  on 
the  other  hand,  the  rent  of  land,  the  profit  of  capital,  and  the  sav- 
ings of  labor  are  governed  by  the  law  of  surplus. 

SECTION.  III. —  The  Cause  of  Rent. 

No  theory  can  be  regarded  as  furnishing  an  adequate  explana- 
tion of  rent  phenomena  which  does  not  explain  the  cause  of  rent. 
When  we  know  how  rent  comes  into  existence,  and  by  what 
social  force  it  becomes  economically  possible,  we  shall  be  able  to 
determine  whether  it  arises  from  an  economic  necessity  and  is  a 
social  advantage,  or  whether  it  is  due  to  economic  despotism  and 
is  a  social  burden, — as  is  commonly  believed.  Upon  this  point 
the  popular  doctrine  is  perhaps  least  of  all  satisfactory.  Francis 


WALKER'S  EXPLANATION  OF  RENT.  22$ 

Walker,  who  has  probably  taken  more  pains  than  any  other 
writer  to  make  good  the  deficiencies  in  the  Ricardian  theory  of 
rent,  endeavors  to  show  that  the  difference  in  the  productiveness 
of  land  is  not  only  the  measure  and  regulator  of  rent,  but  that  it  is 
also  the  cause  or  source  of  rent.  He  has  endeavored  to  illus- 
trate exactly  how,  under  the  influence  of  self-interest,  rent  arises.1 
Like  Ricardo,  he  begins  by  assuming  the  existence  of  a  new 
country  with  four  grades  of  land,  which  will  yield,  with  the  same 
expenditure  of  labor  and  capital,  24,  22,  20,  and  18  bushels  of 
wheat  per  acre  respectively.  He  also,  like  Ricardo,  assumes  that 
the  best  land,  or  24-bushel  tract,  will  be  cultivated  first,  and  the 
others  in  the  order  of  their  fertility,  and  says  :  "  Cultivation  then 
descending  to  the  22-bushel  tract,  rent  emerges.  Under  what  im- 
pulse ?  Why,  by  the  simple  operation  of  the  principle  of  self- 
interest  ;  inasmuch  as  some  of  the  would-be  cultivators  must  go 
upon  the  22-bushel  tract,  every  person  now  in  the  occupation  of 
a  lot  on  the  24-bushel  tract  may  just  as  well — may  he  not  ? — pay 
something  for  the  privilege  of  remaining  where  he  is,  as  take  up 
a  lot  of  the  new  land  for  nothing  ?  If  not,  why  not  ?  How  much 
shall  he  pay  ?  Why,  clearly,  2  bushels  per  acre,  the  difference 
between  the  yield  of  the  two  tracts  under  the  same  application  of 
labor  and  capital." "  This  continues  until  the  whole  four  tracts  are 
brought  under  cultivation,  rent  rising  2  bushels  per  acre  on 
each  tract  under  cultivation,  when  the  next  is  brought  into  use, 
and  the  rent  on  the  different  tracts  is  2,'  4,  and  6  bushels  per 
acre  respectively.  Then  further  "  to  illustrate  the  operation  of 
this  cause  "  he  assumes  the  existence  of  a  distant  tract  of  land 
that  will  yield  with  the  same  labor  and  capital  30  bushels  per 
acre.  But  through  its  greater  distance  from  the  market  12 
bushels  are  consumed  in  transportation,  reducing  the  amount  de- 
livered to  the  market  to  18  bushels,  or  the  same  as  the  product 
of  the  poorest  home  tract.  He  then,  by  a  series  of  improvements 
in  the  methods  of  transportation,  reduces  the  cost  of  bringing 
the  crop  of  the  distant  tract  to  market  from  12  to  9  bushels  per 
acre,  and  says  :  "  The  net  produce  of  the  distant  tract  (30 — 9)  has 
now  risen  to  21  bushels.  The  2o-bushel  tract  must  be  abandoned. 
.  .  .  The  highest  grade  of  land  now  yields  a  rent  of  but  3 
bushels  an  acre  (24 — 21),  the  second  of  but  i  bushel.  The  aggre- 

1  "  Land  and  its  Rent,"  pp.  10,  57.  '  Ibid.,  p.  18. 


224  FERTILITY  NOT  CAUSE   OF  RENT. 

gate  amount  received  by  the  owners  of  land  in  rents  sinks  from 
9  to  4."  ' 

It  will  be  observed  that  at  the  commencement  of  Mr.  Walker's 
community  we  found  the  best  land  producing  24  bushels  per  acre 
and  paying  no  rent ;  then  the  same  land,  without  any  increase 
in  its  productiveness,  pays  a  rent  first  of  2  bushels,  then  of  4 
bushels,  and  finally  of  6  bushels  an  acre.  And  then  after  the 
discovery  of  the  3o-bushel  tract,  without  any  diminution  in  its 
productiveness,  the  rent  of  the  same  tract  falls  from  6  to  3 
bushels  per  acre.  That  of  the  22-bushel  tract  falls  to  i  bushel 
and  that  of  the  2o-bushel  tract  disappears  altogether. 

The  question  here  is  "  under  what  impulse  "  does  the  rent  of 
this  land  rise  and  fall  without  any  change  in  its  productiveness  ? 
What  new  force  came  into  operation  to  make  the  tract  of  land, 
which  formerly  could  be  had  for  nothing,  yield  a  rent  of  6 
bushels  and  subsequently  fall  to  3  bushels  per  acre  ?  "Why," 
replies  Mr.  Walker,  "  by  the  simple  operation  of  the  principle  of 
self-interest."  By  what  course  of  reasoning  can  it  be  shown  that 
the  principle  of  self-interest  in  the  land  owner  will  always  prevail 
against  the  self-interest  of  the  tenant  ? 

Again,  if  rent  is  caused  by  the  fertility  of  the  land  or  the  self- 
interest  of  the  land  owner,  or  both,  why  did  it  not  emerge  when 
cultivation  first  began  on  the  24-bushel  tract  ?  This  was  impos- 
sible, Mr.  Walker  would  reply,  because  it  was  not  until  "  cultiva- 
tion descended  to  the  22-bushel  tract  "  that  "rent  emerges."  If 
rent  was  impossible  on  the  24-bushel  tract  until  the  22-bushel 
tract  was  cultivated,  whatever  power  forced  the  22-bushel  tract 
into  use,  or  made  its  cultivation  possible,  is  manifestly  the  real 
cause  of  rent  on  the  24-bushel  tract.  This  could  not  possibly  be 
the  fertility  of  the  land  or  the  principle  of  self-interest  in  the 
landowner,  as  these  were  just  the  same  before  as  after  rent  was 
paid; 

Nor  does  Mr.  Walker's  distant-tract  illustration  throw  any  real 
light  upon  this  question.  It  is  true  that  rent  on  the  home  tracts 
falls  when  the  distant  tract  is  cultivated,  but  from  what  cause  ? 
Mr.  Walker  replies,  because  "  the  net  produce  of  the  distant  tract 
has  now  risen  to  21  bushels."  Nothing  of  the  kind.  So  far  as 
Mr.  Walker,  has  shown,  no  change  whatever  has  taken  place  in  the 

1  "  Land  and  its  Rent,"  p.  25. 


ORIGIN  OF  RENT  SOCIAL.  22$ 

! 

productiveness  of  the  land.  When  we  first  saw  the  distant  tract 
it  produced  30  bushels  per  acre  ;  it  does  the  same  now.  The 
only  change  that  has  occurred  is  a  reduction  of  3  bushels  per 
acre  in  the  cost  of  transporting  the  crop.  Manifestly  that  is  not 
due  to  any  quality  or  condition  of  the  land  nor  to  the  degree  of 
self-interest  in  the  landowner.  These  are  entirely  unchanged. 
It  may  with  truth  be  said  that  cheapening  transportation  reduces 
the  cost  of  producing  the  wheat,  but  it  in  no  way  changes  the  in- 
fluences of  this  land  upon  the  cost  of  the  wheat.  The  cost  of  the 
wheat  has  been  reduced  by  the  use  of  capital,  but  it  is  by  a  class 
of  capital  quite  distinct  from  land. 

Mr.  Walker  has  shown  that  rent  began  on  the  24-bushel  tract 
when  "  cultivation  descended  to  the  22-bushel  tract,"  and  also 
that  rent  on  all  the  home  tracts  fell  when  the  cost  of  transporting 
the  crop  of  the  distant  tract  was  reduced.  But  this  does  not  explain 
the  cause  which  brought  all  this  about.  To  say  that  rent  rises 
when  inferior  lands  are  cultivated  and  falls  when  transportation 
is  cheapened,  is  only  like  saying  the  train  moves  when  the  engine 
starts.  But  what  starts  the  engine  remains  to  be  ascertained 
before  the  cause  of  this  movement  is  explained.  In  stopping 
at  this  point  Mr.  Walker  repeats  one  of  the  chief  mistakes  of 
orthodox  economists — namely,  the  failure  to  connect  economic 
phenomena  with  the  social  influences  from  which  they  arise.1 

What  is  the  cause  of  rent  is  therefore  still  the  question.  Nor 
will  the  answer  be  very  difficult  to  find  if  we  pursue  the  inquiry 
along  the  lines  already  travelled  and  bear  in  mind  the  conclusions 
reached  in  the  preceding  section  ;  namely,  that  land  like  all  other 
forms  of  capital  is  simply  a  productive  instrument,  and  that  rent 
is  a  net  surplus  resulting  from  its  economic  use.  Since  an 
economic  surplus  is  the  difference  between  the  price  of  products 
and  the  cost  of  their  production,  rent  can  only  be  obtained  from 
the  price  of  the  commodities  in  the  production  of  which  it  is  used 
as  an  instrument.  Clearly  therefore,  it  is  to  the  influences  which 
govern  the  price  of  the  products  that  we  must  look  for  the  cause 
of  rent.  Let  us  return  to  Mr.  Walker's  community  and  see  if  we 
can  ascertain  the  cause  that  made  the  existence  of  rent  possible, 
which  he  failed  to  explain. 

1  This  limitation  in  regard  to  the  use  of  improved  machinery  has  already  been 
pointed  out.     See  pp.  143-149. 
15 


226          RELATION  BETWEEN  PRICES  AND  RENT. 

In  the  first  place  why  did  not  the  24-bushel  tract  pay  a  rent 
when  first  cultivated  ?  It  was  not  because  of  its  inferiority,  since 
it  was  the  best  land  in  the  community  ;  nor  was  it  from  any  lack 
of  self-interest  in  the  landowner,  for  there  never  was  a  time  when 
he  would  not  exact  rent  if  he  could.  The  reason  no  rent  could 
be  obtained  for  it  was  that,  there  being  only  one  grade  of  land  in 
use,  the  cost  of  production,  so  far  as  it  affected  land,  was  uni- 
form. Hence  according  to  the  law  of  price  already  stated,  the 
value  of  every  part  of  the  product  was  only  equal  to  the  cost  of 
its  production.  Since  the  price  of  the  wheat  equalled  the  cost  of 
production  on  the  24-bushel  tract,  in  order  to  cultivate  the  22- 
bushel  tract  without  loss  one  of  two  things  must  necessarily 
occur — either  the  price  of  the  product  must  rise,  or  the  cost  of 
production  must  be  reduced. 

We  will  consider  first,  how  a  rise  in  the  price  of  the  produce 
would  affect  the  situation,  since  the  expounders  of  the  popular 
doctrine  always  assume  that  this  takes  place.  It  is  insisted  upon 
by  these  writers  that  rent  does  not  increase  the  price  of  commod- 
ities to  the  consumer,  because  the  rent  is  the  effect  of  the  price 
and  not  the  price  the  effect  of  the  rent.1  But  if  it  is  true  that 
rent  can  only  be  paid  or,  if  already  paid,  can  only  be  increased 
by  a  rise  in  the  price  of  the  produce,  and  that  the  rise  in  price  is 

1  "  It  is  because  its  (the  produce)  price  is  high  or  low,  a  great  deal  more,  or 
very  little  more,  or  no  more  than  what  is  sufficient  to  pay  these  wages  and 
profits,  that  it  affords  a  high  rent,  a  low  rent,  or  no  rent  at  all."  Adam  Smith, 
"  Wealth  of  Nations,"  book  i.,  chapter  i.,  p.  115.  "  Corn  is  not  high  because 
a  rent  is  paid,  but  a  rent  is  paid  because  corn  is  high."  Ricardo,  "Political 
Economy  and  Taxation,"  p.  39.  See  also  ibid.,  pp.  40,  61,  62.  "  The  in- 
habitants must  consent  to  pay  such  an  additional  price  for  raw  produce  as  will 
enable  the  second  quality  of  land  to  be  cultivated.  No  advance  short  of  this 
will  procure  them  another  bushel  of  corn.  ...  If  they  choose  to  pay  a  price 
sufficient  to  cover  the  expense  of  cultivating  the  land  of  the  second  quality  they 
will  obtain  additional  supplies,  if  they  do  not,  they  must  want  them."  McCul- 
loch,  "Principles  Political  Economy,"  p.  142.  "Rent  is  the  effect  of  high 
price.  .  .  .  It  is  not  from  the  produce,  but  from  the  price  at  which  the  prod- 
uce is  sold,  that  rent  is  derived."  Buchannan,  note,  p.  40,  Ricardo's  works. 
"  It  is  not  the  diversity  of  soils  nor  the  law  of  diminishing  returns,  that  causes 
rents,  since  these  continue  as  before  when  rent  ceases  to  be  paid,  but  it  is  the 
price  of  produce  under  demand  and  supply  that  causes  rent."  Perry,  "  Political 
Economy,"  p.  292.  "  The  rent  of  land  is  determined  by  the  value  of  its  prod- 
uce." Wade,  "  Political  Economy,"  p.  101. 


ECONOMIC  BASIS   OF  RENT.  22/ 

paid  to  the  landowner  in  rent,  it  is  little  more  than  a  quibble 
to  say  that  the  payment  of  rent  does  not  increase  the  price  of 
commodities.  Whether  rent  is  the  cause  or  effect  of  rise  in 
price,  is  of  very  little  importance  to  the  community  if  every  rise 
in  rent  is  accompanied  by  a  rise  in  the  price.  If  for  example,  it 
cost  a  dollar  a  bushel  to  raise  wheat  on  the  24-bushel  tract, 
it  would,  under  the  same  conditions,  cost  a  dollar  and  ten  cents 
a  bushel  to  produce  it  on  the  22-bushel  tract.  If  the  wheat  could 
all  be  sold  at  that  price,  it  would  of  course  yield  a  surplus  of  ten 
cents  a  bushel,  or  two  bushels  an  acre  on  the  24  bushel  tract. 
Were  this  the  only  effect  it  would  be  a  simple  matter,  but  there 
are  other  influences  to  be  reckoned  with.  A  rise  in  prices  would 
be  a  practical  fall  in  wages  ;  hence  every  extension  of  cultivation 
to  poorer  soils  which  increased  the  rent  of  the  landowner  would 
increase  the  poverty  of  the  laborer.  Were  such  the  case,  the  con- 
dition of  the  masses  would  indeed  be  hopeless.  Henry  George's 
pessimistic  declaration  that  "  rent  swallows  up  the  whole  gain 
and  pauperism  accompanies  progress  "  would  be  literally  true. 
Fortunately  for  civilization  however,  the  testimony  of  history  is 
all  against  such  a  notion.  Rents  have  never  increased  so  much 
as  during  the  present  century,  and  the  general  fall  in  prices  was 
never  so  great  as  during  the  same  period. 

Nor  is  it  possible  that  it  should  be  otherwise,  except  in  a  state 
of  political  despotism  or  industrial  piracy.  Under  conditions 
of  economic  freedom,  it  is  as  impossible  for  rent  to  rise  through 
increasing  prices  and  reducing  real  wages,  as  it  is  for  civilization 
to  advance  by  increasing  poverty.  Economic  law  presents  an  ab- 
solute barrier  to  any  such  parasitic  movement  by  which  a  surplus- 
rgceiving  class  can  be  permanently  enriched  by  the  impoverish- 
ment of  the  community.  For  the  same  reason  that  the  landowner 
cannot  obtain  rent  except  when  the  land  yields  a  margin  above 
the  cost  of  production,  the  cultivator  cannot  sell  his  produce  at 
a  price  higher  than  the  consumers  can  afford  to  pay.  Clearly 
therefore,  the  product  cannot  be  sold  at  a  higher  price  unless  the 
purchasing  power  of  the  masses  is  commensurately  increased.  A 
general  increase  of  prices  without  a  rise  of  wages  would  not  only 
defeat  itself  by  destroying  the  market  for  the  products,  but  it 
would  necessarily  lower  the  standard  of  living  and  actually  put 
back  civilization.  If  a  rise  of  prices  is  accompanied  by  a  com- 


228  EFFECT  OF  POPULATION    ON  PRICES. 

mensurate  rise  of  wages,  as  it  admittedly  must  be,1  it  would  in- 
crease the  cost  of  cultivating  the  land  as  much  as  it  increased  the 
price  of  the  crop,  making  the  cultivation  of  the  2  2 -bushel  tract  as 
impracticable  as  ever. 

Nor  would  a  mere  increase  of  population  change  the  result. 
If  population  should  increase  and  the  consumption  or  effectual 
demand  per  capita  of  the  community  (real  wages)  remain  sta- 
tionary, prices  could  not  advance  except  with  the  same  conse- 
quences as  before.  The  mere  fact  presented  by  Mr.  Walker,  that 
the  24-bushel  tract  is  "  inadequate  to  the  needs  of  subsistence," 
is  not  sufficient  to  insure  the  cultivation  of  the  inferior  tract. 
The  community  may  lack  subsistence,  people  may  die  of  starva- 
tion, as  they  often  have  ;  but  nobody  will  cultivate  the  2  2 -bushel 
tract  unless  its  products  can  be  sold  at  a  price  at  least  equal  to 
the  cost. 

It  may  be  said  that  if  the  population  increases,  the  aggregate 
income  and  purchasing  power  of  the  community  would  be  in- 
creased, though  wages  were  stationary.  This  is  true,  but  since  in 
that  case  the  number  among  whom  the  purchasing  power  is 
divided  would  be  increased  in  the  same  ratio,  no  one  would  be 
richer  than  before,  and  consequently,  the  purchasing  power  of 
the  individual  members  of  the  community  would  not  be  increased. 
A  mere  increase  of  the  population,  other  things  remaining  the 
same,  would  enable  a  larger  amount  to  be  consumed  at  the  same 
price,  but  it  would  not  increase  the  capacity  of  anybody  to  pay  a 
higher  price. 

If  an  article  of  food,  clothing,  or  the  like,  cannot  be  produced 
for  less  than  25  cents,  and  at  the  prevailing  rate  of  wages  the 
laborer  can  only  pay  20  cents,  it  is  clearly  out  of  his  power «4o 

1  "  As  the  wages  of  labor  are  everywhere  regulated  partly  by  the  demand  for 
it,  and  partly  by  the  average  price  of  the  necessary  articles  of  subsistence,  what- 
ever raises  this  average  price  must  necessarily  raise  those  wages."  Adam  Smith, 
"Wealth  of  Nations,"  book  v.,  chapter  ii.,  p.  691.  Ibid.,  p.  693.  "  With  a  rise 
in  the  price  of  food  and  necessaries  the  natural  price  of  labor  will  rise."  Ricar- 
do,  "  Political  Economy  and  Taxation,"  p.  50.  "  There  can  be  no  permanent 
fall  of  wages,  but  in  consequence  of  a  fall  (in  the  price)  of  the  necessaries  on 
which  wages  are  expended."  Ibid.,  p.  75.  "  If  they  (the  laborers)  had  to  pay 
8s.  per  quarter  in  addition  for  wheat  .  .  .  wages  would  inevitably  and 
necessarily  rise."  Ibid.,  p.  93.  Cf.  Mill's  "  Political  Economy,"  vol.  ii.,  pp. 
423,  424,  425. 


EFFECT  OF  IMPROVED   METHODS.  229 

consume  it.  Nor  would  any  conceivable  addition  to  the  number 
of  ao-cent  purchasers  add  one  whit  to  their  capacity  for  pur- 
chasing 25-cent  articles.  The  consumption  and  production 
of  25-cent  articles  can  never  be  promoted  by  increasing  the 
number  of  2o-cent  consumers.  Nothing  can  make  the  produc- 
tion of  25-cent  articles  possible  but  the  creation  of  25-cent 
purchasers.  Manifestly,  therefore,  other  things  remaining  the 
same,  it  is  impossible  in  any  general  sense  to  extend  cultiva- 
tion to  inferior  land  by  merely  increasing  the  price  of  com- 
modities. 

Since  the  use  of  the  22-bushel  tract  cannot  be  made  feasible 
by  advancing  prices,  the  only  means  by  which  it  can  be  made 
feasible  is  by  reducing  the  cost  of  production.  There  are 
only  two  ways  by  which  the  cost  of  production  can  be  lessened, 
either  by  a  reduction  of  wages  or  the  use  of  improved  methods.1 
The  former  is  impossible  for  the  same  reason  that  prices  could 
not  be  advanced.  The  latter,  therefore,  is  the  only  alternative 
consistent  with  a  progressive  state  of  society.  What  form  im- 
proved methods  will  take  depends  upon  the  state  of  civilization. 
In  a  very  early  stage  of  society  it  might  consist  of  substituting 
a  spade  for  a  crooked  stick,  or  at  a  later  period  a  plough  for  a 
spade,  or  mowing  and  threshing  machines  for  the  scythe  and 
flail.  At  whatever  period  it  occurs  or  whatever  form  it  takes, 
since  it  cannot  cheapen,  it  must  save  labor.  This  does  not  mean 
that  it  must  merely  discharge  labor  for,  as  already  explained, 
labor  is  only  economically  saved  when  it  is  re-employed.  Thus 
in  the  case  of  land,  as  in  every  other  phase  of  economic  move- 
ment, the  successful  use  of  improved  methods  of  production 
must  necessarily  be  accompanied  by  new  employment-creating 
conditions.  Nothing  can  create  new  employments  except  new 
demands,  or  an  increase  in  the  consumption  of  wealth  per  capita 
of  the  population,  which  of  course  means  an  increase  in  real 
wages.  When  by  this  means  inferior  land  can  be  cultivated 

1  Improved  methods  include  every  thing  that  makes  the  same  land  yield  more 
or  yield  the  same  amount  at  a  less  cost.  This  may  result  from  superior  skill, 
better  division  of  labor,  more  capital  in  the  form  of  fertilization,  better  drainage, 
the  substitution  of  animals  for  men,  or  steam  for  animals,  improved  implements 
for  either,  or  any  other  labor-saving  or  cost-reducing  appliances. 


230  RENT  FOLLOWS  MOVEMENT  OF    WAGES. 

without  loss,  the  superior  land  can  be  cultivated  at  a  profit ;  that 
is  to  say,  when  the  price  of  22  bushels  of  wheat  will  defray 
the  cost  of  cultivating  an  acre  of  the  22-bushel  tract,  the 
24-bushel  tract  will  yield  a  surplus  or  rent  equal  to  ten  cents 
a  bushel  or  two  bushels  per  acre,  without  either  increasing 
the  price  of  the  product  or  reducing  wages.  In  the  last  analysis 
therefore,  the' determining  cause  of  the  use  of  inferior  land  and 
the  payment  of  rent  on  the  superior  land  is  the  increased  con- 
sumption of  wealth  by  the  masses. 

If  we  examine  the  cultivation  of  Mr.  Walker's  3o-bushel  tract 
we  shall  find  that  its  use  finally  depends  upon  the  same  cause. 
He  explains  how  what  he  calls  its  "  net  productiveness  "  rose 
from  1 8  to  22  bushels  per  acre,  by  improved  methods  of  trans- 
portation. The  moment  we  ask  what  made  improved  methods 
of  transportation  possible,  the  answer  is  simple  and  obvious.  The 
railroads  and  steamships  which  enabled  the  lands  of  Dakota  to 
contribute  to  the  wheat  supply  of  Liverpool  and  London  were 
clearly  due  to  the  increased  consumption  of  wealth  per  capita  of 
the  population,  which  made  the  construction  and  use  of  railroads 
economically  feasible.  Nor  could  this  result  from  a  mere  in- 
creased consumption  of  wheat,  but  it  required  a  vast  increase  in 
the  demand  for  numerous  manufactured  articles  whose  produc- 
tion and  consumption  involved  a  large  amount  of  travel  and 
transportation.  An  increased  demand  for  commodities  and  a 
higher  social  standard  of  living,  which  makes  steamships  and 
railroads  possible,  are  simply  the  economic  embodiments  of 
higher  wages.  Thus  whether  land  is  cultivated  in  the  order  of 
the  best  first,  and  the  poorest  last,  as  represented  by  Mr.  Walker's 
four  tracts,  or  the  reverse,  as  claimed  by  Carey,  the  result  is  the 
same,  namely,  that  rent  or  a  surplus  from  the  use  of  land,  like 
that  of  all  other  productive  instruments,  finally  depends  upon  the 
increasing  consumption  of  wealth  per  capita  of  the  community. 
In  other  words,  the  cause  from  which  economic  rent  arises  is  tilt- 
advancing  standard  of  living  and  the  rise  of  real  wages  among 
the  masses. 

SECTION  IV. — Is  Rent  a  Social  Tax  ? 

Were  it  not  commonly  believed  that  rent  is  an  unjust  burden 
upon  the  community,  the  abolition  of  which  warrants  the  subver- 


TRUE  NATURE   OF  RENT.  231 

sion  of  existing  institutions,  the  consideration  of  this  question 
might  properly  seem  superfluous.  The  claim  that  rent  is  a  tax 
by  which  the  land-owning  class  are  enabled  to  live  at  the  expense 
of  the  industrious  community,  legitimately  arises  from  the  Ricar- 
dian  postulate  that  "  rent  is  that  portion  of  the  produce  of  the 
earth  which  is  paid  to  the  landowner  for  the  use  of  the  original 
and  indestructible  powers  of  the  soil."  No  more  fallacious  notion 
was  ever  taught  than  that  rent,  or  any  other  economic  surplus,  is 
a  price  paid  for  the  free  contribution  of  nature.  There  is  no 
economic  law  by  which  a  charge  can  ever  be  exacted  for  the  use 
of  gratuitous  natural  forces.1  This  view  is  further  supported  by 
the  no  less  popular  doctrine  that,  in  the  economic  order  of  dis- 
tribution, rent  is  paid  before  wages,  and  that  consequently  the 
laborer  can  only  receive  as  his  share  of  the  product  what  is  left 
after  rent  and  profits  are  taken  out.2 

The  utter  untenableness  of  both  these  positions  having  been 
already  pointed  out,  the  answer  to  the  question  "  is  rent  a  social 
tax  ? "  need  not  detain  us  long. 

Like  all  other  forms  of  surplus,  rent  arises  from  the  sure 
operation  of  the  law  of  economic  prices  ;  being  simply  the 
difference  between  the  maximum  and  the  minimum  cost  of  pro- 
duction per  unit  of  product. 

If  this  difference  in  the  cost  is  due  to  the  difference  in  the 
methods,  such  as  a  better  division  of  labor,  higher  skill,  more 
capital,  better  machinery,  etc.,  the  surplus  created  will  go  to  the 
entrepreneur  and  in  common  phrase  will  be  called  profits.  And 
if  the  difference  in  the  cost  of  production  is  due  to  the  different 
degrees  of  productive  utility  of  the  land,  the  surplus  created  will 
go  to  the  landowner  as  rent.  If  the  poorest  instruments  and  the 
poorest  lands  are  used  together  no  surplus  can  arise  for  either  the 
landowner  or  entrepreneur.  But  if  superior  instruments  are  used 
with  inferior  land,  the  entrepreneur  may  have  a  surplus  without 
the  landowner  having  rent,  and  conversely,  if  the  superior  land  is 
operated  with  inferior  instruments,  the  landowner  may  obtain  a 
rent,  while  the  entrepreneur  can  have  no  profit.  Thus  there  can 

1  Part  II.,  chap,  iv.,  pp.  21,  22. 

a  Jevons'  "Theory  of  Political  Economy,"  p.  292.  Walker's  "Political 
Economy,"  pp.  248,  249.  Sidgwick's  "Principles  of  Political  Economy,"  p. 
322.  Henry  George's  "Progress  and  Poverty,"  pp.  162,  163. 


232  MACHINERY  AND  LAND. 

neither  be  rents  nor  profits  unless  the  joint  use  of  the  land  and 
implements  produce  at  less  than  maximum  cost,  and  the  surplus 
if  any,  will  be  divided  between  the  owners  of  these  two  classes  of 
productive  instruments  or  all  accrue  to  either  one,  just  in  pro- 
portion as  it  is  due  to  the  superiority  of  the  land  or  of  the 
instruments. 

There  is  this  difference,  however,  between  land  and  other  pro- 
ductive instruments  :  the  different  qualities  of  machinery  always 
come  into  use  in  the  order  of  the  poorest  first  and  the  best  last, 
whereas  in  the  case  of  land,  sometimes  the  best  comes  into  use 
first.  The  reason  for  this  is  that,  machinery  being  a  human  in- 
vention, each  new  device  is  the  result  of  an  effort  to  improve 
upon  the  last  ;  its  superiority  over  existing  methods  being  the 
only  reason  for  using  it,  and  the  only  motive  for  making  it.  On 
the  other  hand,  land  being  a  natural  product  whose  quantity  and 
locality  are  unchangeable,  the  use  of  the  poorer  or  less  productive 
land  can  only  be  made  feasible  by  the  employment  of  superior 
appliances.  Thus,  while  it  is  always  the  best  land  and  the  best 
machinery  which  yields  a  surplus,  in  the  case  of  land  when  the 
best  is  used  first  (as  in  the  Ricardo-Walker  assumption)  it  does  not 
yield  a  surplus  until  the  second  grade  comes  into  use,  whereas  in 
the  case  of  machinery  the  surplus  always  commences  on  the  best 
which  is  last  when  its  own  use  becomes  possible.  But  whether 
the  use  of  land  descends  from  the  superior  to  the  inferior  through 
the  use  of  capital  in  better  drainage,  improved  tools,  machinery, 
etc.,  or  whether  it  ascends  from  the  inferior  to  the  superior 
through  improved  methods  of  transportation  (as  in  the  case  of 
Walker's  distant  tract),  makes  no  difference  either  in  the  amount 
of  rent  paid  or  the  effect  of  rent  upon  wages  and  the  welfare  of 
the  community. 

In  whatever  order  improvements  are  applied  to  the  use  of  land 
and  a  surplus  is  created,  the  rent  will  always  depend  upon  the 
difference  between  the  cost  per  unit  of  the  product  due  to  using 
the  best  land  and  that  of  using  the  poorest  land  employed  for 
that  purpose  within  the  same  competing  group  or  community. 
Since  rent  can  only  be  obtained  from  a  surplus  that  remains  after 
all  costs  of  production  are  paid,  and  since  wages  are  governed  by 
social  causes  independent  of  the  quality  of  land  or  machinery, 
and  prices  are  determined  by  the  cost  of  producing  the  most  ex- 


RELATION  OF  RENT  TO  WAGES. 


233 


pensive  portion  of  the  supply  which  always  includes  wages,  it 
follows  that  rent  can  only  be  obtained  when  a  surplus  remains 
after  wages  and  prices  have  been  determined.  The  economic  re- 
lation of  rent  to  wages  and  prices  is  illustrated  in  the  following 
diagram,  which  represents  Mr.  Walker's  four  tracts  producing  24, 
22,  20,  and  18  bushels  per  acre  respectively,  the  assumption  being 
that  with  wages  at  $1.50  per  day  the  cost  of  production  on  the  18- 
bushel  tract  is  a  dollar  a  bushel. 

No.  3. 


RENT 

PER 

ACRE. 

SURPLUS 

PER 

BUSHEL. 

PRICE 

PER 

BUSHEL. 

WAGES 

PER 

DAY. 

COST  PER  BUSHEL. 

BUSHELS 
PER  ACRE. 

$6.00 

25  c. 
18  c 

$1.00 

Si  oo 

$1.50 

$T  en 

Minimum  cost,  75  c. 
82 

24 

C.                      22 

$2  OO 

IO  C 

$1  OO 

$1  50 

.  go  c.          20 

$O.OO 

OO  C. 

$1.00 

$I.50 

Maximum  cost       . 

*T~i-\/T     r8 

.          JpI.OO     10 

D 


From  the  above,  four  things  will  be  seen  :  (i)  That  A,  who 
uses  the  poorest  land  and  pays  no  rent,  sells  at  cost  and  has  no 
surplus.  (2)  That,  the  price  of  wheat  being  the  same  with  all,  B, 
C,  and  D,  whose  land  yields  2,  4,  and  6  bushels  per  acre  respec- 
tively more  than  that  of  A,  have  a  surplus  of  $2,  $4,  and  $6  per 
acre.  (3)  That  the  surplus  in  the  rent  column  on  the  left  only 
begins  and  increases  as  the  cost  line  per  bushel  on  the  right  re- 
cedes from  (falls  below)  that  of  A.  (4)  That  the  increase 
of  the  amount  in  the  rent  column  in  no  way  affects  the  price  or 
wages  column  ;  D,  whose  rent  is  the  highest,  sells  at  the  same 
price  and  pays  the  same  wages  *  as  A,  who  pays  no  rent  at  all." 
Since  the  consumer's  price  and  the  laborer's  wages  are  both  de- 
termined at  the  point  where  no  rent  is  paid,  it  is  manifest  that 

1  As  a  matter  of  fact  the  large  concerns  in  both  manufacture  and  farming 
represented  by  D,  where  the  largest  capital  and  best  methods  are  used,  are  con- 
stantly tending  to  pay  higher  wages  and  sell  at  lower  prices  than  small  farmers 
or  manufacturers  represented  by  A. 

2  If  we  assumed  the  four  tracts  of  land  to  be  of  uniform  quality  and  suppose 
the  difference  in  the  product  to  arise  from  superior  skill,  larger  capital,  better 
implements,  etc.,  the  result  would  be  exactly  the  same,  only  the  surplus  column 
instead  of  representing    rent   would   represent   profits   as   shown   in   diagram 
No.  i,  p.  204. 


234  HIGH  WAGES  CAUSE  HIGH  RENT. 

the  surplus  paid  to  the  landlord  is  in  no  sense  a  burden  upon 
either  the  consumer  or  the  laborer  ;  that  is  to  say,  prices  are  not 
higher  nor  wages  lower  because  rent  is  paid.  Indeed,  if  rent  were 
obtained  at  the  expense  of  the  consumer  or  the  laborer,  we  should 
find  that  prices  rise  and  wages  fall  as  rents  increase,  whereas  the 
reverse  is  universally  true. 

The  highest  rents  are  paid  in  the  most  civilized  countries,  and 
in  such  countries  rent  is  higher  in  the  city  than  in  the  small  town 
or  rural  district.  And  it  is  precisely  in  these  countries  and  cities 
where  rents  are  the  largest,  that  wages  are  the  highest,  and  gen- 
eral prices  are  the  lowest.1  Consequently  we  find  the  migratory 
movement  of  the  laborers  (which  is  always  towards  higher  wages 
and  better  living)  is  constantly  from  low-rent  countries  to  high- 
rent  countries,  from  the  rural  districts  where  the  rent  is  low  to 
the  cities  where  rent  is  high.  This  also  explains  why  commodi- 
ties can  often  be  obtained  more  cheaply  in  large  cities  than  in 
small  towns,  as  shown  by  the  fact  that  thousands  of  people  travel 
from  fifty  to  a  hundred  miles  to  a  city  to  make  their  purchases. 
This  does  not  mean  that  things  are  cheaper  or  wages  higher 
because  a  rent  is  paid,  but  that  things  are  cheaper  and  rents  are 
larger  because  wages  are  higher  there  than  elsewhere. 

Nor  is  there  any  means,  except  charity  or  theft,  by  which  the 
amount  in  the  rent  column  can  possibly  be  made  to  find  its  way 
to  the  laborer  or  consumer.  The  only  economic  way  it  can  be 
given  to  the  consumer  is  to  compel  B,  C,  and  D  to  reduce  the 
price  of  their  product  the  full  amount  of  their  surplus — 10,  18, 
and  25  cents  per  bushel  respectively.  Should  D  sell  his  wheat  at 
75  cents  a  bushel,  nobody  would  continue  to  buy  from  C,  B,  and 
A,  unless  they  sold  theirs  at  the  same  price,  which  they  could  not 
do,  since  it  cost  them  more  than  that  amount.  If  the  product  of 
C  is  needed,  82  cents  a  bushel  is  the  lowest  price  at  which  it  can 
be  supplied  ;  and  if  that  of  B  is  required,  the  price  cannot  fall 
below  90  cents  a  bushel  ;  land  so  long  as  that  of  A  is  needed,  the 
price  must  be  a  dollar  a  bushel,  because  less  than  that  will  not 
repay  the  cost  of  producing  it.  No  matter  how  the  price  is  fixed 
or  who  fixes  it,  it  cannot  possibly  be  less  than  equal  to  the  cost 
of  producing  the  most  expensive  portion. 

1  That  is  to  say,  the  price  of  a  day's  labor  will  purchase  the  largest  amount  of 
wealth. 


EFFECT  OF  ABOLISHING  RENT.  235 

If  the  surplus  is  to  be  given  to  the  laborer  in  any  other  way 
than  by  reducing  the  price,  it  must  go  in  the  form  of  in- 
creased wages.  In  order  to  do  this  wages  must  rise  directly  as 
the  surplus  increases.  The  same  difficulty  arises  here  as  in  the 
case  of  prices  ;  indeed,  wages  are  simply  the  price  of  labor.  If 
D  pays  higher  wages,  then  the  laborers  of  C,  B,  and  A  will  refuse 
to  work  unless  they  can  have  the  same.  If  A  is  compelled  to 
raise  wages  equal  to  25  cents  a  bushel,  the  cost  and  hence  the 
minimum  price  of  his  product  will  necessarily  rise  to  $1.25  a 
bushel,  which  will  then  be  the  price  of  the  whole  product.  Thus, 
all  that  D,  C,  and  B  are  by  this  means  forced  to  give  to  the 
laborer  in  higher  wages,  A  is  forced  to  demand  back  again  from 
the  consumer  in  higher  prices,  and  the  difference  or  surplus  will 
be  exactly  as  before,  the  only  change  being  that  both  wages  and 
prices  have  risen  25  cents.  In  short,  there  are  no  economic 
means  by  which  A  can  obtain  an  equivalent  of  the  cost  of  his 
product  which  will  not  give  B,  C,  and  D  a  surplus  ;  and  con- 
versely, there  are  no  means  by  which  D  can  sell  at  cost  which 
will  not  bankrupt  C,  B,  and  A. 

There  are  two  conditions  which,  under  economic  freedom,  all 
competing  producers  must  fulfil  or  leave  the  business  :  other 
things  being  the  same,  they  must  pay  the  same  wages  and  sell 
their  products  at  the  same  price  as  their  competitors  in  the  same 
market.  For  the  same  reason  that  D's  price  cannot  be  reduced 
without  lowering  that  of  C,  B,  and  A,  the  wages  paid  by  A  cannot 
be  reduced  without  lowering  those  paid  by  all  the  others,  since 
whatever  will  enable  A  to  either  raise  the  price  or  reduce  wages 
will  enable  B,  C,  and  D  to  do  the  same.  Manifestly  therefore, 
if  the  landowner  were  prohibited  from  taking  the  surplus  of  B, 
C,  and  D  in  the  form  of  rent,  it  would  simply  remain  in  the  hands 
of  the  farmer  or  entrepreneur  as  profits.  Since  the  surplus  is  not 
increased  by  virtue  of  its  being  divided  between  the  landowner 
and  entrepreneur,  it  could  not  be  diminished  by  giving  it  all  to 
either  one  of  them.  In  other  words,  as  the  surplus  arising  from 
the  difference  in  the  cost  of  producing  with  the  poorest  and  the 
best  land  would  be  the  same  whether  rent  is  paid  or  not,  the 
abolition  of  rent  would  simply  be  an  increase  of  profits.  Rent, 
in  short,  is  entirely  a  question  between  the  landowner  and  the 
entrepreneur  and  does  not  enter  into  the  problem  either  of  prices 


236  RENT  QUESTION  SUMMARIZED, 

or  of  wages.  It  being  impossible  for  the  surplus  of  B,  C,  and  D 
to  go  to  the  consumer  either  in  higher  wages  or  lower  prices, 
whether  it  shall  all  remain  in  the  hands  of  the  entrepreneur  or  be 
shared  between  him  and  the  landowner  is  of  no  economic  or 
social  importance  to  the  laborer  or  to  the  community. 

The  social  welfare  of  the  people  can  advance  only  as  prices 
fall  and  wages  rise,  results  which  cannot  be  promoted  by  any 
manipulation  of  rent.  It  is  by  lessening  the  cost  of  production 
and  not  by  appropriating  the  surplus  that  prices  must  be  reduced. 
The  cost  of  production  can  be  lessened  only  by  using  improved 
methods.  The  successful  use  of  improved  methods  depends 
upon  increasing  consumption  and  higher  wages.  Therefore  the 
improvement  of  the  social  condition  of  the  masses  and  the  general 
advancement  of  society  must  be  sought  in  the  influences  which 
promote  the  advance  of  real  wages  and  not  in  any  schemes  for 
abolishing  rents. 

The  question  of  economic  rent  then,  may  be  summarized  thus  : 
(i)  That  rent  is  a  net  surplus  arising  from  the  use  of  land  as  an 
economic  instrument  ;  (2)  That  rent  tends  to  equal  the  differ- 
ence in  the  productive  utility  of  the  different  portions  of  land 
used  for  the  same  purpose  in  the  same  community  or  competing 
group  ;  (3)  That  the  economic  use  of  inferior  land  simulta- 
neously with  superior,  and  hence  the  payment  of  rent,  finally  de- 
pends upon  the  employment  of  improved  methods  of  production 
(use  of  capital)  ;  (4)  That  the  successful  use  of  improved  meth- 
ods depends  upon  the  increased  consumption  of  wealth  per  capita 
of  the  community  or  a  higher  social  standard  of  living  among 
the  masses  and,  that  rent  is  not  the  cause  of  low  wages,  but 
the  economic  consequence  of  high  wages  ;  (5)  That  since  rent  is 
an  economic  surplus  the  existence  and  increase  of  which  depends 
upon  the  social  progress  and  increasing  wages  of  the  laboring 
classes,  it  is  in  the  broadest  sense  the  interest  of  the  landowning 
class  to  promote  in  every  way  possible  the  economic  and  social 
advancement  of  the  laboring  classes. 


CHAPTER  V. 

THE  LAW  OF  INTEREST. 

SECTION  I. — Popular  Theories  of  Interest. 

INTEREST  is  economically  analogous  to  rent ;  it  sustains  pre- 
cisely the  same  relation  to  capital  that  rent  does  to  land.  In  con- 
sidering the  question  of  interest,  therefore,  we  have  to  deal  with 
essentially  the  same  economic  problem  we  considered  in  the  last 
chapter.  All  the  popular  objections  urged  against  the  payment 
of  rent  as  a  burden  to  the  community,  an  exaction  from  the  laborer, 
etc.,  are  presented  with  equal  force  against  the  payment  of  inter- 
est. And  conversely,  the  same  reasons  that  justify  the  payment 
of  rent  apply  equally  to  that  of  interest.  Scientifically  therefore, 
all  that  is  necessary  in  dealing  with  the  question  of  interest  is  to 
apply  to  capital  the  law  already  stated  in  regard  to  land. 

Unfortunately  however,  in  this  instance,  as  in  almost  every 
other  question  in  economics,  a  simple  direct  statement  of  the  sub- 
ject is  practically  impossible  without  first  clearing  away  some  of 
the  confusion  in  which  it  has  been  involved.  The  utter  lack  of 
logical  consistency  which  characterizes  the  body  of  economic 
doctrines  authoritatively  taught  is  such  that  there  is  practically 
no  mutual  relation  between  the  different  departments  of  the  sub- 
ject. There  being  no  recognized  common  centre  of  movement, 
no  order  of  relation  and  mutual  dependence  of  phenomena,  and 
hence  no  accepted  general  law  which  they  shall  obey,  each  phase 
of  the  subject  is  discussed  for  the  most  part  as  if  it  had  no  neces- 
sary relation  to  the  whole  but  were  governed  by  laws  peculiar  to 
itself.  Thus  we  find  Ricardo  and  other  English  economists 
teaching  that  profits  are  governed  by  a  law  entirely  different 
from  that  which  regulates  rent.  And  now  more  than  half  a 
century  later  we  have  Mr.  Walker  declaring  the  same  thing  with 
regard  to  interest. 

23? 


238  WALKER'S    VIEW  OF  INTEREST. 

This  is  the  more  astonishing  in  Mr.  Walker's  case,  because  he 
makes  special  claim  to  having  presented  a  logical  order  of  distri- 
bution.1 When  dealing  with  the  question  of  rent,  which  he  puts 
first,  he  never  tires  of  proclaiming  the  doctrine  that  rent  does 
not  affect  the  price  of  the  product,  since  that  is  determined  by 
the  use  of  no-rent  land  ;  yet  he  fails  to  recognize  this  principle 
in  the  case  of  interest,  and  emphatically  declares  that  "  there  is 
not  any  no-interest  capital,"  and  says  : 

"We  have  seen  that  the  whole  theory  of  rent  rests  on  the 
assumption  that  there  is  a  body  of  no-rent  lands.  ...  In 
the  theory  of  capital  there  is  nothing  to  correspond  to  this. 
The  economist  does  not  find  any  no-interest  capital.  In  theory, 
all  capital  bears  an  interest,  and  all  portions  of  capital  bear 
equal  interest.  .  .  .  But  what  has  been  stated  shows 
how  fundamentally  the  theory  of  interest  differs  from  that  of 
rent."3 

Why  should  we  assume  that  "  there  is  a  body  of  no-rent  lands  " 
and  that  "  there  is  not  any  no-rent  capital "  ?  Upon  what 
ground  should  we  assume  that  "  all  portions  of  capital  bear  equal 
interest  "  ?  Surely  we  have  a  right  to  demand  some  explanation, 
some  pertinent  facts  in  experience,  or  a  well-established  principle 
before  we  can  be  expected  to  accept  such  sweeping  affirm- 
ations. If,  as  Mr.  Walker  says,  "  interest  forms  a  part  of 
the  price  of  all  products,"3  then  all  interest  is  a  tax  upon  the 
consumer,  and  the  wealth  of  the  rich,  so  far  as  interest  is  con- 
cerned, is  obtained  at  the  expense  of  the  poor.  It  will  not  be 
difficult  to  show  that  Mr.  Walker's  position  on  interest,  which  is 
essentially  the  same  as  that  of  Marx  on  profits,  and  George  on 
rent,  rests  like  theirs  on  pure  assumption  unsupported  by  estab- 
lished facts  or  verified  principle.  When  discussing  profits  he  in- 
sists that  there  is  no-profit  capital  and  says  : 

"  The  employers  of  the  lowest  grade — the  no-profit  employers, 
as  we  have  called  them — must  pay  wages  sufficient  to  hire  labor- 
ers to  work  under  their  direction.  These  wages  constitute  an  es- 
sential part  of  the  cost  to  the  employer  of  the  production  of  the 
goods.  The  fact  that  these  wages  are  so  high  is  the  reason  why 

1  "  Political  Economy,"  pp.  193,  248. 
*  Ibid.,  pp.  222,  223. 
3  Ibid.,  pp.  235,  236. 


SIMILARITY  OF  INTEREST  AND  PROFIT.  239 

these  employers  are  unable  (their  skill,  etc.  being  the  same)  to 
realize  any  profit  for  themselves."  ' 

If  we  ask  Mr.  Walker  why  there  are  "  no-profit  employers," 
which  of  course  means  no-profit  capital,  he  will  reply,  as  he  has 
at  length,  that  it  is  because,  under  free  and  active  competition, 
prices  tend  to  equal  the  cost  of  production  under  the  greatest 
disadvantage.2  If  there  is  any  economic  power  by  which  prices 
can  be  forced  down  to  the  no-profit  point  and  to  the  no-rent 
point,  why  can  they  not,  by  the  same  power,  be  forced  down  to 
the  no-interest  point  ?  If  the  owner  of  the  poorest  tools  in  use 
is  powerless  to  demand  a  price  sufficiently  high  to  yield  a  profit 
upon  the  capital  invested  in  those  tools,  by  what  force  in 
economics  can  he  demand  a  price  high  enough  to  yield  interest 
for  that  capital  ?  Obviously  the  same  power  that  will  enable 
him  to  insist  upon  the  one  will  enable  him  to  obtain  the 
other. 

When  considering  the  law  of  prices,3  we  saw  that,  at  the  price- 
determining  point  (producing  at  the  greatest  disadvantage),  each 
factor  in  production  obtained  only  the  exact  equivalent  of  the 
cost  of  its  contribution  to  the  product ;  that  is  to  say,  that  no 
factor  in  production  can  add  more  value  to  the  product  than  it 
loses  in  the  process.  Consequently  the  price  of  the  product 
cannot  be  greater  than  the  equivalent  of  the  aggregate  cost  of  the 
factors  jointly  employed  in  its  production.  Clearly  if  there  is 
any  power  by  which  more  can  be  demanded  from  the  product  for 
capital  than  the  equivalent  of  what  it  gives  (the  cost  of  maintain- 
ing its  productive  efficiency),  the  same  power  will  enable  the 
consumer  and  the  laborer  to  do  likewise.  It  is  only  upon  the 
principle  that  capital  employed  under  the  greatest  disadvantage 
will  barely  yield  the  cost  of  maintaining  its  productive  efficiency, 
that  no-rent  land  and  no-profit  employers  are  possible.  It  is 
solely  because  their  product  sells  at  cost  that  they  occupy  the 
datum-line  or  price-fixing  position.  Manifestly  any  social  con- 
ditions or  economic  law  which  will  make  no-rent  land  and  no- 
profit  factories  possible,  will  also  make  no-interest  capital 
possible. 

1  "Political  Economy,"  pp.  240,  241. 

" Ibid.,  pp.  236-242. 

3  Chapter  iv.,  pp.  20-22. 


240  NO-INTEREST  CAPITAL. 

Moreover,  facts  everywhere  sustain  this  theorem.  There  is 
probably  no  well-established  industry,  either  in  agriculture,  man- 
ufacture, or  commerce,  in  which  there  is  not  permanently  a  cer- 
tain amount  of  no-interest  capital  employed.  There  are  hun- 
dreds and  perhaps  thousands  of  small  farmers,  merchants,  and 
manufacturers  in  this  and  every  other  commercially  advanced 
country,  who  remain  in  business  for  years  and  barely  obtain  a 
living  and  keep  their  capital  intact.  Nor  do  I  refer  to  those  re- 
sults of  bad  judgment  and  inexperience  which  Mr.  Walker  calls 
"accidents,"1  but  only  to  capital  which  is  so  employed  as  the 
necessary  result  of  economic  law. 

Mr.  Walker  may  reply  that  no  one  will  accumulate  wealth  and 
invest  it  in  production  unless  he  can  obtain  a  reward  at  least  to 
the  extent  of  interest.  Even  if  this  were  literally  correct  and 
without  an  exception,  it  would  not  prevent  the  use  of  no-interest 
capital.  Indeed  if  capital  were  never  invested  for  less  than  the 
maximum  profit  the  use  of  the  no-interest  capital  would  be  not 
only  possible  but  inevitable.  Through  the  concentration  of  cap- 
ital and  the  use  of  improved  methods,  maximum-profit  yielding 
capital  is  constantly  being  reduced  to  the  no-interest  point. 

Suppose  for  example,  that  in  the  manufacture  of  cotton  cloth 
half  a  million  dollars  are  invested  in  the  plant  which  at  the  time 
is  of  the  most  modern  type,  and  that  the  capital  not  only  yields 
interest  but  a  profit.  In  the  course  of  a  few  years  a  great  im- 
provement in  machinery  is  discovered  by  the  use  of  which  the 
cost  of  cotton  cloth  is  greatly  reduced.  Through  the  fall  in  price 
resulting  from  the  use  of  this  new  machinery,  the  profits  of  those 
who  still  produce  by  the  previous  methods  are  entirely  destroyed. 
The  capital  which  at  first  yielded  a  high  profit  ceases  to  yield 
any  thing  above  the  bare  cost  of  production — wages,  raw  material, 
and  actual  wear  and  tear.  Consequently,  if  this  capital  continues 
to  be  employed  it  must  be  used  without  profit  or  interest. 
Moreover,  when  through  still  further  improvements  the  price  falls 
too  low  for  this  now  inferior  machinery  to  be  used  without  loss, 
the  capital  invested  in  the  tools  of  the  next  grade  above  will  fall 
to  the  no-interest  point,  and  so  on.  Thus,  while  it  may  be  true 
that  no  capital  is  originally  invested  without  interest  or  even  high 

1  "  Political  Economy,"  p.  235. 


MOVEMENT  OF  CAPITAL.  24! 

profit,  it  constantly  tends  towards  the  no-interest  point  through 
the  use  of  improved  methods.  This  does  not  mean,  however, 
that  the  same  capital,  or  the  capital  of  the  same  persons,  continues 
to  be  employed  at  the  no-interest  point ;  on  the  contrary,  such 
capital  is  constantly  struggling  to  move  from  no-interest  to  high- 
profit  uses.  This  however,  is  often  difficult  to  do  without  loss. 
If  the  capital  is  invested  in  machinery  which  is  reduced  to  the 
no-interest  point  by  the  competition  of  larger  concerns  using  su- 
perior methods,  then  it  can  only  be  transferred  to  high-profit  uses 
by  being  invested  in  the  superior  methods  and  producing  on 
a  larger  scale,  and  this  usually  involves  a  larger  amount  of  capi- 
tal, the  lack  of  which  often  makes  such  transfer  impossible.  Cap- 
ital is  often  thus  retained  in  the  same  business  for  a  considerable 
time  after  it  ceases  to  yield  interest,  partly  in  the  hope  of  doing 
better  and  partly  from  fear  of  a  loss  of  the  principal  in  any  sud- 
den transfer  to  new  fields.  From  these  and  many  other  causes 
which  are  constantly  in  operation,  especially  among  small  pro- 
ducers, capital  is  often  continued  in  a  business,  not  merely  until 
it  reaches  the  no-interest  point,  but  in  many  cases  until  it  is 
forced  by  competition  to  the  losing  point.  Thus,  while  capital  is 
constantly  struggling  to  move  from  no-interest  to  high-profit  uses, 
that  portion  of  it  which  is  used  under  the  poorest  conditions  is 
always  no-interest  capital. 

If  prices  could  never  fall  below  the  interest-paying  point  for 
the  capital  invested  in  the  poorest  tools,  then  the  use  of  improved 
machinery  would  not  cheapen  commodities,  but  would  simply 
increase  profits.  Nothing  but  working  at  a  loss  or  the  failure  to 
obtain  interest  will  enforce  the  disuse  of  the  most  inferior  instru- 
ments, and  permit  prices  to  fall  to  the  cost  of  producing  with 
superior  methods,  and  thus  compel  the  advantages  of  improved 
machinery  and  concentrated  capital  to  pass  to  the  community  in 
lower  prices  instead  of  remaining  in  the  hands  of  capitalists  as 
higher  profits. 

This  is  what  is  constantly  taking  place  in  every  progressive 
community.  There  is  scarcely  a  machine-using  industry  in  which 
capital  has  not  been  reduced  from  the  high-profit  to  the  no- 
interest  point  several  times  over  during  the  present  century. 
Take,  for  example,  the  cotton  industry.  In  the  first  quarter  of 

this  century,  capital  invested  in  machinery  that  could  produce 
16 


MOVEMENT  OF  INTEREST. 

calico  at  30  cents  a  yard  would  yield  a  high  profit.  And  before 
1830  the  capital  invested  in  the  same  machinery  could  not  yield 
interest,  nor  even  be  used  without  loss,  the  price  of  calico  having 
fallen  to  17  cents  a  yard.  And  the  high-profit  capital  of  1830 
reached  the  no-interest  or  losing  point  by  1843,  when  the  price 
had  fallen  to  12  cents  a  yard.  And  the  high-profit  capital  of  1843 
again  reached  the  no-interest  point  by  1850,  when  the  price  had 
fallen  to  9  J  cents  a  yard  ;  and  so  on,  until  to-day  the  capital  can- 
not receive  interest  which  is  unable  to  produce  the  same  com- 
modity at  less  than  5  cents  a  yard.  Thus  the  whole  circle  from 
high-profit  to  no-interest  has  been  traversed  several  times  over 
during  the  present  century.  In  fact,  every  dollar's  worth  of 
capital  invested  in  the  print-cloth  business  since  the  invention 
of  the  power-loom,  that  could  not  produce  print-cloth  at  4 
cents  a  yard,  has  been  reduced  to  the  no-interest  point.1  Since 
Mr.  Walker  admits  that  this  takes  place  in  the  sphere  of  both 
profits  and  rents,  why  he  should  fail  to  see  that  through  the 
same  law  it  must  also  take  place  in  the  sphere  of  interest,  is  not 
a  little  surprising.  He  appears  to  have  fallen  into  the  same  error 
that  the  English  economists  committed  in  regard  to  rent  and 
profits.  They  saw  that  rent  is  paid  from  a  surplus  above  the 
cost,  and  hence  is  not  an  addition  to  the  price  of  the  product ; 
while  they  regard  profits  as  the  reward  for  the  abstinence  of  the 
capitalist,  and  hence  a  necessary  addition  to  the  price.*  Mr.  Walker 
saw  their  error  in  not  regarding  profits  as  a  surplus  similar  to 
rent,  yet  he  has  repeated  the  same  oversight  regarding  interest. 
Indeed,  he  has  taken  their  formula  for  profits  and  used  it  as  a 
definition  of  interest,  and  says  :  "  Capital,  as  we  have  seen,  is  the 
result  of  saving.  Interest,  then,  is  the  reward  for  abstinence."  * 

1  !•  the  mm  industries  there  are  many  large  properties  that  are  barely  np  to 
the  level  of  no-interest  mse  without  loss  to-day  which  a  few  jean  ago  yielded 
high  profits.  The  Jfcfrodarfina  of  tmmmful  orrentiops  has  in  •any  instances 
rcdaccd  wnttttm*  of  dollars"  worth  of  — -i*;— T  not  merely  to  the  no-interest 
foot,  bat  forced  it  oat  of  use  altogether. 

*  "  Wealth  of  Nations,"  book  L,  chapter  vi.,  p.  y)  •  chapter  riL,  p.  42 ; 
book  T.,  eha^Cer  n,~,  p.  691.  Rkardo's  "  Works,"  pp.  39,  68.  McCnlloch's 
"  Principles  of  Political  Economy,"  p.  42.  Mill's  "  Principles  of  Political 
Economy."  *oL  L,  pp.  569-72. 

"  Po6tal  Economy,"  p.  224  ;  also  p.  66  ;  </.  Mai's  "  Principles  of  Political 
Economy,"  rot  L,  p.  405. 


CAPITAL   NOT  DUE    TO  ABSTINENCE.  243 

This  definition  is  as  unfortunate  for  interest  as  it  was  for  profit, 
and  for  the  same  reason.  If  all  capital  is  the  result  of  abstinence, 
and  all  abstinence  is  necessarily  rewarded  by  interest,  then  not 
only  would  all  capital  receive  interest,  but  the  interest  would  be 
in  proportion  to  the  degree  of  sacrifice  or  abstinence  involved  in 
its  accumulation.  The  difficulty  with  this  view  is  that  it  is  incon- 
sistent with  the  facts.  In  the  first  place,  there  is  no  inductive 
warrant  for  the  broad  assumption  that  all  capital  is  the  result  of 
abstinence.  As  we  have  already  shown,  much  the  larger  portion 
of  capital  in  use  to-day  has  been  accumulated  without  any 
conscious  abstinence  whatever.  It  is  undoubtedly  true  that  in  all 
countries  accumulations  at  first  represent  abstemiousness  and 
sometimes  painful  sacrifice.  The  amount  thus  accumulated, 
however,  represents  a  small  fraction  of  the  productive  capital  of 
to-day.  Take,  for  example,  the  Rothschilds,  Goulds,  Vander- 
bilts,  Sages,,  and  Astors.  While  it  may  be  true  that  the  first  few 
thousands  of  their  accumulations  represent  abstinence,  it  is  doubt- 
ful if  one  per  cent,  of  the  capital  accumulated  after  the  first  half 
million  represents  abstinence  in  the  remotest  sense.  From  what 
do  these  gentlemen  abstain  ?  what  gratification  that  wealth  can 
give  do  they  forego  ?  It  is  because  the  greater  part  of  their 
capital  is  not  due  to  abstinence,  but  to  the  surplus  earnings  of 
the  capital  already  in  use,  that  it  increases  much  faster  after 
they  cease  to  practise  abstinence  than  it  ever  could  before. 

If  interest  were  only  the  reward  for  abstinence,  then  all  the 
capital  which  is  accumulated  without  abstinence  would  receive 
no  interest  ;  whereas  that  is  just  the  capital  which  most  uniformly 
receives  the  highest  interest,  while  the  capital  of  the  small  farmers, 
manufacturers,  and  merchants,  which  is  the  result  of  the  most 
painful  abstinence,  is  that  which  is  most  generally  used  without 
interest.  In  fact,  the  whole  idea  of  a  reward  for  abstinence  is 
fallacious.  Nature  does  not  reward  abstinence  ;  she  only  rewards 
effort.  Capital  does  not  receive  a  reward  because  it  represents 
parsimony,  but  solely  because  it  aids  in  production  ;  and  its 
reward  depends  entirely  upon  the  degree  of  its  exceptional  pro- 
ductive efficiency.  And  from  the  causes  above  enumerated  it 
tends  towards  the  no-interest  point  directly  as  improved  methods 
are  introduced,  without  regard  to  whether  it  was  painfully  or 
unconsciouslv  accumulated. 


244  RENT,   INTEREST,   AND  PROFIT. 

SECTION  II. —  The  True  Theory  of  Interest. 

If  we  bear  in  mind  the  conclusions  already  reached  regarding 
prices,  and  the  nature  and  function  of  capital,  there  need  be  no 
difficulty  in  understanding  the  question  of  interest.  That  inter- 
est and  rent  are  of  the  same  economic  species  is  apparent  from 
their  every  characteristic.  They  are  both  paid  in  the  same  way 
and  for  the  same  reason — namely,  to  obtain  the  use  of  capital 
belonging  to  another.  Had  land  and  other  forms  of  capital 
always  been  used  by  those  who  owned  them,  no  distinction 
between  rent,  interest,  and  profits  would  ever  have  been  made. 
It  was  not  until  the  different  productive  factors  began  to  be  used 
by  those  who  did  not  own  them  that  any  such  distinction  became 
necessary.  Manifestly,  when  the  producer  owned  all  the  land  and 
other  instruments  he  used,  all  the  surplus  product  resulting  from 
their  use  was  his,  and  it  might  be  designated  either  as  rent,  inter- 
est, or  profits  ;  but  there  could  be  no  reason  for  calling  differ- 
ent portions  of  it  by  different  names.  But  when  the  productive 
instruments  began  to  be  owned  in  varying  degrees  by  different 
persons,  that  portion  of  the  surplus  product  resulting  from  the 
use  of  each  instrument  naturally  belonged  to  the  owner  of  that 
instrument.  In  order  to  distinguish  between  that  portion  which 
goes  to  the  owners  of  the  different  instruments,  it  was  necessary 
to  designate  them  by  different  terms.  Instead,  therefore,  of  rent, 
interest,  and  profit  being  economically  different  from  each  other 
and  governed  by  different  laws,  it  will  be  seen  that  they  are 
simply  different  portions  of  the  same  aggregate  surplus  and  are 
governed  by  the  same  general  principle. 

Let  it  be  assumed  for  illustration  that  A,  B,  and  C  represent 
three  classes  of  producers  contributing  to  the  supply  of  the  same 
market,  A  owning  all  the  land  and  other  instruments  he  uses,  B 
owning  his  implements  but  hiring  his  land,  and  C  hiring  both 
land  and  instruments.  And  for  the  sake  of  simplicity  let  it  be 
further  assumed  that,  through  the  superior  quality  of  their  land 
and  tools,  they  produce  15  per  cent,  more  than  their  most  inferior 
competitor  (he  using  the  most  inferior  methods),  and  conse- 
quently have  a  surplus  of  15  per  cent.  Under  these  conditions 
it  is  quite  clear  that  A,  owning  all  the  means  of  production,  will 
have  the  whole  surplus  ;  he  will  obtain  15  per  cent,  more  for  his 


THE  LAW  ILLUSTRATED.  245 

product  than  it  cost  him  in  wages,  raw  material,  and  wear  and 
tear  of  implements.  B,  not  owning  the  land,  has  to  give  5  per 
cent,  of  his  product  to  the  landowner  as  rent.  Consequently  his 
production  being  the  same,  his  surplus  will  equal  that  of  A,  minus 
the  amount  paid  for  rent  (15 — 5  per  cent.).  The  case  of  C  is 
like  that  of  B,  only  more  so.  Owning  neither  the  land  nor  the 
instruments,  he  has  to  hire  both  ;  hence,  for  the  same  reason  that 
he  must  pay  5  per  cent,  of  his  product  to  the  landowner  for  the 
use  of  the  land,  he  must  pay  5  per  cent,  of  it  to  the  capitalist  for 
the  use  of  the  capital  in  tools  and  stock  ;  while  the  selling  price 
and  all  other  costs  being  the  same,  his  surplus  will  equal  that  of 
B,  minus  the  rent,  and  that  of  A,  minus  rent  and  interest 
(15  —  10  per  cent.).  They  all  produce  at  15  per  cent,  more 
with  the  same  investment  than  those  who  use  the  poorest  tools, 
and  hence  create  a  surplus  of  15  per  cent.  But  A,  who  owns  all 
the  means  of  production,  receives  all  the  surplus  ;  while  B,  who 
does  not  own  the  land,  has  to  give  one  third  of  the  surplus  to  the 
landowner  ;  and  C,  who  owns  neither  land  nor  capital,  has  to 
give  one  third  to  the  landowner  and  one  third  to  the  capitalist, 
leaving  only  one  third  for  himself. 

Clearly  therefore,  rent,  interest,  and  profits  all  come  from  the 
same  source — the  economic  surplus, — the  only  difference  being 
that  rent  and  interest  are  stipulated  portions  of  the  general  sur- 
plus, while  profit  is  the  contingent  remainder.  In  the  case  of  A 
the  whole  surplus  is  contingent  profit.  In  the  case  of  B  rent  is 
stipulated  and  the  surplus,  minus  rent,  is  contingent  profit.  And 
in  the  case  of  C,  both  rent  and  interest  being  stipulated,  only  the 
contingent  remainder  after  these  are  paid  is  profit.  There  is 
manifestly  no  economic  force  by  which  C  can  add  his  interest  to 
the  price  of  the  product  or  abstract  it  from  the  wages  of  the 
laborer,  which  will  not  enable  B  to  do  the  same  with  rent.  For 
the  same  reason  that  prices  tend  to  equal  the  cost  of  producing 
with  the  poorest  land  in  use  without  the  payment  of  rent,  they 
will  equal  the  cost  of  producing  with  the  poorest  tools  in  use 
without  the  payment  of  interest. 

If  the  poorest  land  and  the  poorest  tools  and  most  inferior 
management  were  all  used  together,  we  should  find  the  no-rent 
landowner,  no-interest  capitalist,  and  no-profit  entrepreneur  all 
represented  in  the  same  farm,  factory,  or  other  enterprise.  It  is 


246  PROFIT  A    CONTINGENT  REMAINDER. 

because  the  best  instruments  and  skill  are  sometimes  applied  to 
the  poorest  land,  and  the  best  land  is  sometimes  used  with  the 
poorest  skill  and  management,  that  we  often  find  those  who  pay 
high  rents  failing  to  obtain  interest  or  profits,  while  those  paying 
less  rents  can  pay  interest  and  make  profit.  In  other  words  the 
surplus,  being  the  result  of  the  superiority  of  the  land,  instru- 
ments, or  skill  over  the  poorest  in  use,  is  (through  the  natural 
equity  of  economic  law)  distributed  among  the  owners  of  those 
factors  which  produce  it.  If  it  is  all  due  to  the  land,  it  all  goes 
to  rent  ;  if  it  is  all  due  to  the  instruments,  it  all  goes  to  interest ; 
if  it  is  all  due  to  management  of  the  entrepreneur,  it  all  goes  to 
profits  ;  if  it  is  equally  due  to  them  all,  it  will  be  evenly  divided 
in  rent,  interest  and  profits.  Thus  whichever  way  we  consider 
the  subject,  interest  is  economically  identical  with  rent,  it  being  to 
capital  precisely  what  rent  is  to  land.  In  other  words,  rent  and 
interest  are  simply  differentiated  portions  of  profit — stipulated 
disbursements  of  the  aggregate  economic  surplus, — while  the  en- 
trepreneur's profit  is  the  undivided  contingent  remainder.1 

It  may  be  said  that  the  rent  of  B  and  the  rent  and  interest  of  C 
are  indispensable  items  in  the  cost  of  production.  This  is  correct, 
but  they  are  not  indispensable  items  in  the  cost  of  A,  with  whom 
B  and  C  have  to  compete.  Since  B  and  C  can  make  no  charge  to 
the  community  for  any  cost  which  A  is  willing  to  do  without,  the 
only  economic  means  by  which  B  and  C  can  be  reimbursed  for 
their  rent  and  interest  is  by  enlarging  their  surplus  through  in- 
creased production.  Indeed  that  is  the  only  reason  rent  or  interest 
is  ever  paid.  No  one  will  pay  rent  for  the  productive  use  of  land 
unless  he  can  obtain  an  advantage  by  so  doing.  The  only  reason 
a  person  will  pay  a  dollar  a  foot  for  land  in  one  place  when  he  can 
get  it  for  a  dollar  an  acre  in  another  is,  that  by  paying  the  higher 
rent  he  saves  a  greater  expense  in  some  other  way.  For  exam- 
ple, there  is  plenty  of  land  admirably  suited  for  market  garden- 

1  The  producer  who  uses  his  own  capital  never  receives  interest  ;  if  he  has  any 
surplus  over  the  necessary  cost  of  production,  which  includes  the  remuneration 
for  his  own  services — it  is  profit.  Because  the  interest  paid  for  the  use  of  capi- 
tal is  a  definite  percentage,  it  has  become  more  or  less  habitual  in  business 
circles  to  speak  of  profits  as  interest  up  to  a  certain  amount.  Hence,  we  some- 
times hear  it  said  that  a  concern  has  not  made  the  interest  on  its  capital.  All 
this  expression  means  is  that  the  profit  or  surplus  has  not  been  equal  to  what 
they  would  have  had  to  pay  as  interest  if  they  had  borrowed  the  capital. 


INTEREST  NOT  A    PART  OF  COST.  247 

ing  which  can  be  had  for  nearly  nothing.  But  it  is  so  far  from 
the  city  market  that  the  cost  in  transportation  and  waste  in  prod- 
uct would  be  much  greater  than  the  high  rent  paid  for  land  by  the 
market  gardener  in  the  suburbs  of  the  large  city.  Instead  of  the 
high  rent  increasing  the  cost,  it  simply  obviates  the  necessity  of 
the  still  greater  cost  that  would  be  involved  in  using  land  that 
could  be  obtained  without  rent  or  at  a  lower  rent. 

The  same  is  true  of  interest.  The  only  motive  for  borrowing 
capital  is  to  increase  the  contingent  surplus  by  more  than  the 
amount  to  be  paid  as  interest.  Whether  or  not  this  will  be 
achieved  will  largely  depend  upon  the  correctness  with  which  the 
possible  surplus  is  calculated.  If  the  surplus  is  overestimated, 
rent  and  interest  may  absorb  it  all,  or  they  may  even  be  greater 
than  the  total  surplus,  in  which  case  the  entrepreneur  will  suffer  a 
net  loss.  This  is  what  occurs  when  the  profits  of  small  farmers 
are  all  absorbed  by  the  interest  on  their  mortgages,  and  those 
of  small  manufacturers  and  merchants  by  the  interest  on  their 
borrowed  capital,  of  which  we  hear  so  much.1  The  only  means, 
therefore,  by  which  rent,  interest,  and  profits  can  be  obtained  is 
the  creation  of  a  surplus  by  producing  at  less  than  the  maximum 
cost.  The  non-landowning  capitalist  can  only  have  a  profit  by 
creating  a  surplus  more  than  equal  to  the  rent.  The  entrepreneur 
can  only  have  a  profit  by  creating  a  surplus  more  than  equal  to 
both  rent  and  interest.  Interest  then  is  not  the  necessary  reward 
for  abstinence,  nor  is  it  a  part  of  the  price-fixing  cost  of  produc- 
tion, but  it  is  simply  that  portion  of  the  economic  surplus  which 
is  paid  for  the  use  of  capital  (tools)  owned  by  another  ;  and  since 
it  can  neither  be  added  to  the  price  of  commodities  nor  sub- 
tracted from  the  wages  of  labor,  it  cannot  be  a  tax  upon  the  com- 
munity. 

Interest  is  not  only  not  injurious  to  the  community,  it  is  a 
positive  advantage.  It  is  one  of  the  most  effective  means  of 
concentrating  capital  and  bringing  improved  methods  of  produc- 
tion into  successful  operation.  There  are  thousands  of  millions 
of  dollars  invested  in  railroads,  steamships,  and  other  modern 
enterprises,  which  could  not  have  been  utilized  for  such  purposes 

1  Over  sixty  per  cent,  of  the  capital  invested  in  railroads  in  this  country  in 
1888  failed  to  yield  a  profit,  because  the  surplus  was  all  absorbed  in  paying  the 
interest  on  the  bonds. 


248  ECONOMIC  CHARACTER   OF  INTEREST. 

without  the  payment  of  interest.  It  is  doubtful  if  there  is  a  rail- 
road in  existence  that  could  have  been  built  with  the  capital 
owned  by  its  actual  projectors.  The  payment  of  interest  was  the 
only  means  of  obtaining  the  capital  from  those  who  had  neither 
the  wisdom,  energy,  nor  capacity  to  put  it  to  such  use.  Indeed 
such  enterprises  as  the  Suez  Canal,  the  great  railroad  and  steam- 
ship lines,  Atlantic  cables,  petroleum  pipe-lines,  and  the  modern 
telegraph,  would  have  been  utterly  impossible  but  for  the  con- 
centration of  capital  which  the  payment  of  interest  made  possi- 
ble. Interest,  instead  of  being  a  burden  to  the  community,  is 
thus  one  of  the  great  wealth-cheapening  agencies  of  civilization. 


CHAPTER  VI. 
THE    LAW  OF   PROFIT. 

SECTION  I. — Orthodox  Economics  Responsible  for  Socialistic 

Theories. 

Since  the  time  of  Adam  Smith  and  Ricardo  economists  have 
generally  taught  :  (i)  that  profit  is  a  necessary  part  of  the  price 
of  the  commodity  to  the  consumer  ;  (2)  that  profit  can  rise  only 
as  wages  fall.  In  supporting  the  first  proposition  Mill  devotes 
several  pages  to  showing  that,  in  proportion  as  the  capital  ex- 
pended in  production  is  invested  in  machinery,  buildings,  etc., 
profit  becomes  an  increasing  item  in  the  cost  of  production,  and 
consequently  an  increasing  addition  to  the  price  of  the  com- 
modity.1 

According  to  this  view,  when  any  commodity  goes  through  a 
considerable  number  of  hands  during  the  process  of  manufacture, 
the  price  paid  by  the  consumer  largely  consists  of  profits.  For 
example,  if  iron  goes  through  ten  different  stages  before  it  is  con- 
verted into  steel,  and  the  rate  of  profit  is  five  per  cent.,  about  two 

1  "  The  flax-spinner,  part  of  whose  expenses  consists  of  the  purchase  of  flax 
and  of  machinery,  has  had  to  pay,  in  their  price,  not  only  the  wages  of  the  labor 
by  which  the  flax  was  grown  and  the  machinery  made,  but  the  profits  of  the 
grower,  the  flax-dresser,  the  miner,  the  iron-founder,  and  the  machine-maker. 
All  these  profits,  together  with  those  of  the  spinner  himself,  were  again  advanced 
by  the  weaver  in  the  price  of  his  material,  linen  yarn  ;  and  along  with  them  the 
profits  of  a  fresh  set  of  machine-makers,  and  of  the  miners  and  iron-workers  who 
supplied  them  with  their  metallic  material.  All  these  advances  form  part  of  the 
cost  of  production  of  linen.  Profits,  therefore,  as  well  as  wages,  enter  into  the 
cost  of  production,  which  determines  the  value  of  the  produce." — "  Principles  of 
Political  Economy,"  vol.  I.,  p.  568.  Cf.  "  Wealth  of  Nations,"  book  v.,  ch.  ii.i 
pp.  691,  692. 

249 


250  ENGLISH  POSTULA  TES. 

thirds  of  the  price  of  the  finished  product  would  consist  of 
profits.  It  will  be  seen  that  this  theory  supports  the  popular  no- 
tion that  all  so-called  middle-men  are  parasites  upon  the  product 
of  the  community.  If  this  were  true,  heroic  measures  for  their 
elimination  would  certainly  be  in  order. 

The  second  postulate — that  profit  can  rise  only  as  wages  fall 1 
— implies  that  the  wealth  of  the  capitalist  simply  represents  the 
poverty  of  the  laborers.  The  employing  classes  are  thus  taught 
that  their  interest  invariably  lies  in  keeping  wages  low,  and  the 
laboring  classes  are  just  as  effectually  taught  that  the  only  way  to 
increase  wages  is  to  reduce  profit.  The  natural  effect  of  this 
doctrine  is  seen  in  the  antagonistic  attitude  which  these  two 
classes  assume  towards  each  other. 

As  a  legitimate  outcome  of  the  English  doctrine — that  profits 
can  only  increase  as  wages  diminish, — we  have  the  theory,  first  of 
Rodbertus,  that  the  laborer  receives  "  a  smaller  fraction  of  the 
product  in  proportion  as  his  productiveness  increases,"  and  "hence 
becomes  more  dependent  as  society  advances2;  and  next,  the 

1  "  There  can  be  no  rise  in  the  value  of  labor  without  a  fall  of  profits." — Ri- 
cardo's  "  Works,"  p.  23.  "  Can  any  point  be  more  clearly  established  than  that 
profits  must  fall,  with  a  rise  of  wages?" — Ibid.,  p.  63,  "It  has  been  my 
endeavor  to  show  throughout  this  work,  that  the  rate  of  profits  can  never  be  in- 
creased but  by  a  fall  in  wages." — Ibid.,  pp.  74,  75.  "Whatever  raises  the 
wages  of  labor  lowers  the  profits  of  stock." — Ibid.,  p.  122.  See  also  ibid.,  pp. 
60,  65,  93,  136.  "  The  whole  produce  of  industry  under  deduction  of  rent  is  di- 
vided between  laborers  and  capitalists The  proportion  falling  to  the 

capitalist  is  increased  when  that  falling  to  the  laborers  is  diminished,  and  dimin- 
ished when  it  is  increased Mr.  Ricardo  has  endeavored  to  show  .... 

that  a  rise  of  profits  can  never  be  brought  about,  except  by  a  fall  of  proportional 
wages,  nor  a  fall  of  profits,  except  by  a  corresponding  rise  of  proportional  wages." 
— McCulloch's  "Principles  of  Political  Economy,"  pp.  192,  193.  " We  thus 
arrive  at  the  conclusion  of  Ricardo  and  others,  that  the  rate  of  profits  depends  upon 
wages  ;  rising  as  wages  fall  and  falling  as  wages  rise." — Mill's  "  Principles  of  Po- 
litical Economy,"  vol.  i.,  p.  512.  "Wages  equalise  product  of  industry  minus 
the  three  parts  (rent,  interest,  and  profits)  already  determined  in  their  nature  and 
amount." — Walker's  "  Political  Economy,"  p.  248.  "What  remains  after  sub- 
tracting the  aggregate  price  paid  for  the  use  of  capital  ....  is  obviously  the 
share  of  labor." — Sidgwick  :  "  Principles  of  Political  Economy,"  p.  322. 

8  "  Rent  and  wages  are  thus  shares  into  which  the  product  is  divided  so  far  as 
it  is  income.  Whence  it  follows  that  the  larger  one  share  is  the  smaller  must 
be  the  other.  If  the  rent  takes  a  larger  share  of  the  product,  a  smaller  share 
must  remain  for  wages.  As  one  share  varies  in  size  so  must  the  other  in  inverse 


RODBERTUS  AND  MARX.  25  I 

doctrine  of  Karl  Marx,  that  all  forms  of  rent,  interest,  and  profit 
are  robbery.1  These  two  formulae  have  become  the  accepted  basis 
of  the  whole  socialistic  movement,  so  rapidly  increasing  in  all  civil- 
ized countries.  By  a  critical  examination  of  the  process  of  eco- 
nomic production,  Marx  endeavors  to  scientifically  demonstrate 
how,  in  the  nature  of  the  capitalist  system,  unpaid  wages  consti- 
tute the  source  of  all  rent,  interest,  and  profit.  It  must  be  admitted 
that  if  this  proposition  can  be  scientifically  sustained,  the  theory 
of  socialism — which  demands  the  public  ownership  of  all  the 
means  of  production — cannot  be  successfully  disputed.  And  on 
the  contrary,  if  this  proposition  can  be  shown  to  be  erroneous, 
the  whole  economic  fabric  of  socialism  falls.  It  is  of  the  utmost 
importance,  therefore,  in  discussing  the  question  of  profit,  that 
the  claim  of  this  theory  should  be  fully  considered. 

SECTION  II. — Marx's  Theory  of  Exploitation. 

After  an  elaborate  explanation  of  his  theory  of  value  which  is 
substantially  that  of  Ricardo  ;  namely,  that  commodities  and  la- 
bor exchange  on  the  basis  of  the  quantity  of  labor  expended  in 
their  production,2  Marx  illustrates  the  process  of  exploiting  the 

ratio The  share  of  the  working  class,  that  is  of  the  great  majority  of 

society,  does  not  remain  a  fixed  unchangeable  fraction  of  the  product  in  pre- 
cisely the  same  proportion  as  the  productiveness  increases."  ....  (Therefore, 
"  There  must  be  produced  that  fatal  contradiction  in  society,  that  the  more  equal 
and  the  more  free  all  its  members  become  before  the  law  and  politically,  the 
more  unequal  and  dependent  are  the  majority  of  the  working  classes  economi- 
cally  The  conclusion  follows  that  the  existing  form  of  division  of  the 

national  product  cannot  continue." — Views  of  Rodbertus  translated  from  the 
work  of  Dr.  Rudolf  Myer  ;  Appendix  to  Hyndman's  "  Historical  Basis  of 
Socialism." 

"The  capitalist  mode  of  production  and  accumulation,  and  therefore  capi- 
talist private  property,  have  for  their  fundamental  condition  the  annihilation  of 
self-earned  private  property  ;  in  other  words,  the  expropriation  of  the  laborer." 
— "Capital, "p.  800. 

1 "  Commodities,  therefore,  in  which  equal  quantities  of  labor  are  embodied, 

or  which  can  be  produced  in  the  same  time,  have  the  same  value As 

values,  all  commodities  are  only  definite  masses  of  congealed  labor  time." 
— "  Capital,"  p.  6.  "  So  far  as  it  (labor-power)  has  value,  it  represents  no  more 
than  a  definite  quantity  of  the  average  labor  of  society  incorporated  in  it.  ... 
Given  the  individual  the  production  of  labor-power  consists  in  his  reproduction 
of  himself  or  his  maintenance." — Ibid.,  p.  149. 


252  MARX'S   THEORY  STATED. 

laborer  by  the  manufacture  of  cotton  yarn,  which  he  states  with 
great  precision,  and  says  : 

"  We  assumed  on  the  occasion  of  its  sale  that  the  value  of  a 
day's  labor  power  is  three  shillings,  and  that  six  hours'  labor  are 

incorporated  in  that  sum The  same  quantity  of  labor  is 

also  embodied  in  a  piece  of  gold  of  the  value  of  three  shillings. 
Consequently  by  the  mere  labor  of  spinning,  a  value  of  three 
shillings  is  added  to  the  cotton.  Let  us  now  consider  the  total 
value  of  the  product,  the  ten  pounds  of  yarn.  Two  and  a  half 
days'  labor  have  been  embodied  in  it,  of  which  two  days  were 
contained  in  the  cotton  and  in  the  substance  of  the  spindle  worn 
away,  and  half  a  day  was  absorbed  during  the  process  of  spin- 
ning. This  two  and  a  half  days'  labor  is  also  represented  by  a 
piece  of  gold  of  the  value  of  fifteen  shillings.  Hence,  fifteen  shil- 
lings is  an  adequate  price  for  the  ten  pounds  of  yarn,  or  the  price 
of  one  pound  is  eighteen  pence.  Our  capitalist  stares  in  astonish- 
ment. The  value  of  the  product  is  exactly  equal  to  the  value  of 
the  capital  advanced.  The  value  so  advanced  has  not  expanded, 
no  surplus  value  has  been  created,  and,  consequently,  money  has 
not  been  converted  into  capital."  ' 

The  capitalist  is  then  described  as  being  in  any  thing  but  a 
tranquil  state  of  mind  at  the  result ;  and  after  giving  some  weak 
but  truly  othodox  reasons  why  he  should  have  had  a  profit,  he  is 
represented  as  leaving  "all  such  like  subterfuges  and  juggling 
tricks  to  the  professors  of  political  economy  who  are  paid  for  it," 
and  as  turning  his  attention  to  concocting  a  new  scheme  for  the 
creation  of  surplus  value — in  which  he  succeeds.  The  capitalist 
then  analyzes  the  factors  in  production  and  finds  that  no  surplus 
can  be  squeezed  out  of  the  raw  material  or  the  machinety  ;  hence 
it  must  be  exploited  from  the  labor-power.  This  he  decides  can 
be  done  by  making  the  laborer  work  twice  as  many  hours  for  the 
same  wages.  He  then  resumes  business  on  his  twelve-hour  plan 
with  complete  success,  the  process  of  which  Marx  states  thus  : 

"The  laborer  therefore  finds  in  the  workshop  the  means  of 
production  necessary  for  working  not  only  during  six  but  during 
twelve  hours.  Just  as  during  the  six  hours'  process  our  ten  pounds 
of  cotton  absorbed  six  hours'  labor  and  became  ten  pounds  of 
yarn,  so  now  twenty  pounds  of  cotton  will  absorb  twelve  hours' 
141  Capital,"  p.  171. 


<T  ANTHC 
n 


MISLEADING  ILLUSTRATIONS.  253 

labor  and  be  changed  into  twenty  pounds  of  yarn.  Let  us  now 
examine  the  product  of  this  prolonged  process.  There  is  now 
materialized  in  this  twenty  pounds  of  yarn  the  labor  of  five  days, 
of  which  four  days  are  due  to  the  cotton  and  the  lost  steel  of  the 
spindle,  the  remaining  day  having  been  absorbed  by  the  cotton 
during  the  spinning  process.  Expressed  in  gold  the  labor  of  five 
days  is  thirty  shillings.  This  is  therefore  the  price  of  the  twenty 
pounds  of  yarn,  giving  as  before  eighteen  pence  as  the  price  of  a 
pound.  But  the  sum  of  the  values  of  the  commodities  that 
entered  into  the  process  amounts  to  twenty-seven  shillings. 
The  value  of  the  yarn  is  thirty  shillings.  Therefore  the  value  of 
the  product  is  one  ninth  greater  than  the  value  advanced  for  its 
production  ;  twenty-seven  shillings  have  been  transformed  into 
thirty  shillings  ;  a  surplus-value  of  three  shillings  has  been 
created.  The  trick  has  at  last  succeeded  ;  money  has  been  con- 
verted into  capital." ' 

Thus,  according  to  Marx,  in  the  spinning  process  six  shillings 
of  value  have  been  added  to  the  twenty  pounds  of  yarn  by  the  use 
of  labor,  for  which  the  laborer  has  received  only  three  shillings, 
and  the  laborer  has  been  exploited  of  half  he  produced.  Through- 
out the  whole  discussion  in  the  remaining  625  pages  of  his  book, 
Marx  never  tires  of  reminding  the  reader  of  this  fact.*  It  must 
be  admitted  that  "  the  trick  has  at  last  succeeded,"  and  it  almost 
looks  as  if  the  capitalist  had  performed  it ;  but  let  us  examine  the 
process  a  little  closer. 

In  the  first  instance  the  case  stood  :  155.  value  of  yarn  =  los. 
raw  cotton  -f-  23.  machinery  -f-  33.  labor  power.  If  we  ask  why 
the  value  of  the  yarn  was  just  15  shillings,  Marx  promptly  ex- 
plains that  it  is  because  only  "  fifteen  shillings  were  spent  in  the 
open  market  upon  the  constituent  elements  of  the  product,  or 
what  amounts  to  the  same  thing,  upon  the  factors  of  the  labor 
process."  3 

Let  us  examine  the  twenty  pounds  of  yarn  produced  under  the 
"  prolonged  process  "  in  the  light  of  the  law  Marx  has  applied  to 
the  production  of  the  ten  pounds.  Here  the  different  items  of 
cost  were  as  follows  : 

1  "  Capital,"  pp.  175,  176. 

2  Ibid.,  pp.  176,  198,  200,   201,   203,  211,   219,    220,   222,   289,    533,  541,  542, 
543,  544,  550,  592-  *  Ibid.,  p.  171. 


254  SURPLUS    VALUE  FALLACY. 

Raw  material 205. 

Wear  and  tear  of  machinery 45. 

Twelve  hours'  labor  power, 33. 

Total  cost, 275. 

Thus,  according  to  the  above  law,  the  total  value  of  the  product 
is  twenty-seven  shillings.  "  Oh  no,"  exclaims  Marx,  that  would 
give  no  surplus  value.  He  admits  that  the  cost  of  the  yarn  in 
this  case  is  only  twenty-seven  shillings,  but  he  insists  that  its  value 
is  thirty  shillings.1  According  to  Marx  then,  his  economic  law 
of  value  works  thus  :  IDS.  +  2S-  +  3s-  cost  =  T5S-  value  ;  while 
2os.  -\-  45.  +  35.  cost  =  303.  value.  That  is  to  say,  155.  equals 
153.,  but  273.  equals  303.  Now  by  what  application  of  his  own 
law  of  value,  according  to  which  fifteen  shillings'  cost  can  only 
produce  fifteen  shillings'  value,  can  he  make  twenty-seven  shil- 
lings' cost  produce  thirty  shillings'  value  ?  Clearly  if  the  twenty 
pounds  of  yarn,  the  production  of  which  only  cost  twenty-seven 
shillings,  can  have  a  value  of  thirty  shillings,  then  by  the  same 
law  the  ten  pounds  of  yarn  whose  production  cost  fifteen  shillings 
can  be  sixteen  shillings  and  six  pence.  To  assume  that,  while  a 
cost  of  fifteen  shillings  cannot  yield  a  value  of  more  than  fifteen 
shillings,  a  cost  of  twenty-seven  shillings  can  yield  a  value  of 
thirty  shillings,  is  to  violate  alike  the  laws  of  lo^ic  and  the  rules 
of  arithmetic.  Manifestly,  surplus  value  was  no  more  created  in 
the  production  of  the  twenty  pounds  of  yarn  than  in  that  of  the 
ten  pounds.  The  three  shillings  here  paraded  as  surplus  value  is 
a  pure  invention  of  Marx.  True,  "  the  trick  has  at  last  succeed- 
ed " ;  but  it  was  performed  by  Marx  and  not  by  the  capitalist. 
It  is  obviously  a  trick  of  metaphysics  and  not  of  economics.  The 
only  exploitation  here  revealed  is  the  exploitation  of  socialistic 
credulity,  and  not  of  economic  labor  power.  A  theory  according 
to  which  153.  value  —  153.  cost,  while  303.  value  =  273.  cost, 
needs  only  to  be  stripped  of  its  metaphysical  garment  in  order  to 
be  rejected. 

The  fallacy  here  so  boldly  flaunted — and  made  to  do  service  as 
the  scientific  basis  for  a  radical  reconstruction  of  society — can  be 

1  "  The  sum  of  the  values  of  the  commodities  that  entered  into  the  process 
amounts  to  twenty-seven  shillings.  The  value  of  the  yarn  is  thirty  shillings. 
.  .  .  A  surplus  value  of  three  shillings  has  been  created." — "Capital,"  pp. 
175,  i?6. 


RELATION  OF  LABOR    TO    VALUE,  255 

exposed  in  many  ways.  It  is  true  that  in  Marx's  second  case  the 
laborer  is  made  to  produce  twenty  pounds  of  yarn  for  the  same 
wages  which  he  previously  received  for  producing  ten  pounds. 
But  this  change  of  labor  cost,  according  to  Marx's  own  theory, 
would  not  create  a  surplus  value  of  three  shillings  for  the  capital- 
ist ;  on  the  contrary,  it  would  reduce  the  price  of  the  product 
three  shillings  to  the  consumer.  It  is  a  well-established  law  in 
economics  that  the  value  of  commodities  tends  to  diminish  as  the 
ratio  of  product  to  cost  of  labor  increases.  That  Marx  recognizes 
this  principle,  when  discussing  other  phases  of  the  subject,  is 
clear  from  the  following  statement  : 

"Let  us  assume  that  some  invention  enables  the  spinner  to 
spin  as  much  cotton  in  six  hours  as  he  was  able  to  spin  before  in 
thirty-six  hours.  His  labor  is  now  six  times  as  effective  as  it  was 
for  the  purposes  of  useful  production.  The  product  of  six  hours' 
work  has  increased  sixfold,  from  six  pounds  to  thirty-six  pounds. 
But  now  the  thirty-six  pounds  of  cotton  absorb  only  the  same 
amount  of  labor  as  formerly  did  the  six  pounds.  One-sixth  as 
much  new  labor  is  absorbed  by  each  pound  of  cotton,  and  con- 
quently,  the  value  added  by  the  labor  to  each  pound  is  only  one- 
sixth  of  what  it  formerly  was." ' 

This  is  exactly  what  occurred  in  the  hypothetical  case  just 
considered.  When  the  laborer,  in  Marx's  second  case,  produced 
twice  as  much  yarn  for  three  shillings  as  he  produced  in  the  first, 
he  only  added  half  as  much  value  to  each  pound  of  yarn  he  pro- 
duced. Hence,  for  the  same  reason  that  he  added  three  shillings 
to  the  value  of  the  ten  pounds  of  yarn,  he  only  adds  three  shil- 
lings to  the  value  of  the  twenty  pounds ;  and,  consequently,  its 
value  can  only  be  twenty-seven  shillings,  and  no  surplus  value  is 
created. 

Suppose  for  illustration,  that,  instead  of  doubling  the  length  of 
the  laborer's  working  day,  the  price  of  raw  cotton  should  fall  fif- 
teen per  cent.  The  cost  of  the  different  factors  in  the  produc- 
tion of  twenty  pounds  of  yarn  would  then  be  as  follows  : 

Raw  material 175. 

Cost  of  wear  and  tear  of  machinery,    .     .       45. 
Twelve  hours'  labor, 6s. 

Total  cost, 275. 

1  "Capital, "p.  183.     See  also  pp.  151,  171,  172,  175,  176,  194,  195,  196. 


256  MARX'S   THEORY  BREAKS  DOWN. 

The  laborer  in  this  instance  receives  twice  as  much  as  when 
working  for  Marx,  but  the  result  is  exactly  as  before,  the  only  dif- 
ference being  that  the  three  shillings  is  saved  on  the  cost  of  raw 
material,  instead  of  the  cost  of  labor  power.  Would  Marx  claim 
that  the  value  of  the  yarn  is  now  thirty  shillings  ?  Certainly  not. 
On  the  contrary,  he  would  insist  that  it  could  not  possibly  be 
more  than  twenty-seven  shillings  since,  as  he  repeatedly  declares, 
auxiliary  capital  and  raw  material  can  only  add  to  the  value  of 
the  product  the  value  which  they  lose  in  the  process — /'.  e.  the  cost 
of  replacing  them,1 — and  every  fall  in  the  cost  of  raw  material 
shows  itself  in  a  fall  in  the  price  of  the  product.  Indeed,  were 
this  otherwise,  cheap  raw  material  and  improved  machinery  would 
have  no  influence  in  reducing  the  price  of  commodities.  If  then, 
the  twenty-seven  shillings'  cost  in  this  instance  could  only  yield 
twenty-seven  shillings'  value,  by  what  rule  of  logic  or  experience 
can  it  be  assumed  that,  by  transferring  three  shillings  of  the  cost 
from  the  labor  power  to  the  raw  material,  the  twenty-seven 
shillings'  cost  would  yield  thirty  shillings'  value  ?  As  a  matter  of 
economic  law,  it  can  make  absolutely  no  difference  to  the  value 
of  the  product  whether  the  twenty-seven  shillings'  cost  is  all  in 
one  item,  or  is  spread  over  a  hundred  items  ;  if  it  will  yield  a  value 
of  thirty  shillings  when  it  is  all  spent  in  labor  power,  it  will  do 
the  same  when  it  is  all  spent  in  raw  material  and  machinery,  and 
nothing  is  paid  for  labor.  Clearly  therefore,  the  attempt  of 
Marx  to  show  that  fifteen  shillings'  cost  can  yield  only  fifteen 
shillings'  value,  and  that  by  a  mere  change  in  the  distribution  of 
the  items  of  expenditure,  a  cost  of  twenty-seven  shillings  will 
yield  a  value  of  thirty  shillings,  is  a  complete  failure,  and  conse- 
quently his  theory  of  surplus  value,  and  that  of  the  "  exploitation 
of  the  laborer,"  entirely  breaks  down. 

SECTION  III. —  The  Cause  of  Marx's  Error. 

The  cardinal  mistake  in  the  argument  of  Marx  arises  from  a 
too  literal  acceptance  of  the  Ricardian  theory  that  the  value  of 

1 ' '  The  value  of  a  commodity  therefore  varies  directly  as  the  quantity  and  in- 
versely as  the  productiveness  of  the  labor  incorporated  in  it." — "  Capital,"  p.  7. 
"  It  (machinery)  never  adds  more  value  than  it  loses  on  an  average  by  wear  and 
tear." — Ibid.,  p.  383.  "  The  less  labor  it  (machinery)  contains  the  less  value  it 
imparts  to  the  product.  The  less  value  it  gives  up  so  much  the  more  productive 
it  is,  and  so  much  the  more  its  services  approximate  to  those  of  natural  forces." 
— Ibi(t.t  p.  386. 


CAUSE   OF  MARX'S  ERROR. 

commodities  is  determined  by  the  quantity  of  labor  expended  in 
their  production.  If  he  had  been  more  of  an  economist  and  less 
of  a  revolutionist,  he  might  have  seen  that  this  is  one  of  the  many 
instances  where  Ricardo  came  very  near  the  truth  but  just  missed 
it.  The  error  of  this  postulate,  as  already  pointed  out,1  consists 
in  making  the  value  of  the  product  depend  upon  the  quantity 
instead  of  the  cost  of  the  labor  power  expended  in  its  production. 

In  considering  the  relation  of  the  cost  of  labor  to  the  value  of 
the  product,  it  should  always  be  remembered  that  it  is  the  total 
cost  of  the  aggregate  labor  consumed  in  a  given  unit  of  product 
which  affects  its  value,  and  not  necessarily  the  cost  per  unit  of 
labor.  If  the  cost  of  labor  per  unit  of  time  is  diminished,  the  quantity 
of  labor  consumed  in  a  unit  of  product  may  be  increased  without  in- 
creasing its  value.  And  conversely,  if  the  cost  of  a  unit  of  labor 
is  increased,  the  quantity  of  labor  consumed  in  a  unit  of  product  may 
be  diminished  without  reducing  its  value. 

Thus  it  is  that  the  value  of  a  commodity  varies  with  a  variation 
in  the  quantity  of  labor  devoted  to  its  production  only  when  the 
cost  of  the  labor  per  unit  of  time  remains  the  same.  If  Marx, 
instead  of  unqualifiedly  accepting  Ricardo's  crude  formula,  had 
recognized  this  fact,  he  would  have  seen  that  when  the  laborer's 
working  day  was  doubled  without  any  change  in  his  daily  wages, 
although  the  quantity  of  labor  expended  was  double,  the  total 
cost  of  labor  power  was  the  same  ;  hence,  as  double  the  amount 
was  produced,  the  cost  of  labor  power  per  unit  of  product  was 
reduced  one-half.  It  would  then  have  been  clear  to  him  that  the 
value  of  the  twenty  pounds  of  yarn  could  have  been  increased 
only  three  shillings  by  the  twelve  hours'  labor,  because  three 
shillings  was  all  that  the  twelve  hours'  labor  cost.  The  product 
of  the  three  shillings'  worth  of  labor  being  twenty  instead  of  ten 
pounds  of  yarn,  the  labor  cost  of  each  pound  was  of  course  fifty 
per  cent,  less,  and  therefore  the  value  of  the  twenty  pounds  of 
yarn  was  only  twenty-seven  shillings  instead  of  thirty  shillings, 
as  Marx  assumed. 

The  first  condition  of  scientific  law  is  that  it  must  explain 
existing  and  constantly  recurring  phenomena.  This  is  precisely 
what  Marx  and  the  English  economists  have  not  attempted  to 
make  their  theory  of  profit  do.  They  have  assumed  that  from 
the  general  principle  of  self-interest  in  human  nature  no  one  will 

1  Part  II.,  chapter  v.,  section  ii. 


258  MISTAKEN  ASSUMPTIONS. 

use  capital  in  production  except  he  can  obtain  a  profit.  From 
this  they  concluded  that  all  capitalists  must  of  necessity  obtain 
profit,  and  that  the  rate  of  profit  tends  to  approximate  uniformity 
in  all  industries.  Since  all  capitalists  are  assumed  to  be  governed 
by  the  same  principle  of  self-interest,  each  one  is  regarded  simply 
as  a  duplicate  of  the  rest,  instead  of  being  treated  as  one  of  the 
ever  varying  units  of  a  highly  complex  aggregate.  Consequently, 
in  treating  the  question  of  profit,  while  assuming  free  compe- 
tition, Marx  deals  only  with  a  single  producer,  or  if  with  more 
than  one,  he  assumes  that  they  all  produce  at  the  same  cost  per 
unit  and  have  substantially  the  same  rate  of  profit. 

This  is  precisely  what  does  not  occur.  Neither  uniform  cost 
of  production  nor  a  uniform  rate  of  profit  exists  in  any  civilized 
country,  nor  have  they  ever  existed  under  the  capitalistic  system 
of  production.  On  the  contrary,  the  characteristic  feature  of 
that  productive  system  is  free  competition  among  numerous  pro- 
ducers, who  produce  at  an  ever  increasing  variety  of  costs  per 
unit  of  product  and  an  equally  varying  rate  of  profit.  It  is  pre- 
cisely because  profits  are  not  uniform,  but  that  in  the  same 
industry  some  can  secure  large  profits  while  others  can  obtain 
none,  that  the  profit  system  is  so  fiercely  assailed  as  unjust.  The 
chief  charge  against  trusts  and  syndicates  is  that  they  undersell 
the  smaller  producers,  and  through  obtaining  a  monopoly  secure 
to  themselves  large  profits.  It  is  not  surprising  that  Marx,  like 
the  English  economists,  should  fail  to  find  equitable  profit  when 
he  ignored  the  only  conditions  under  which  profit  always  exists. 


SECTION  \V.—How  Economic  Profit  is  Equitably  Evolved. 

If  profit  is  necessarily  inequitable,  it  is  uneconomic  ;  if  it  can- 
not be  obtained  without  injustice,  it  should  be  prohibited.  Profit 
has  already  been  defined  as  the  undivided  surplus  remaining 
after  all  costs  are  paid.  It  has  also  been  explained  that  the  law 
of  surplus  is  a  necessary  corollary  of  the  law  of  price,  which  also 
has  been  presented  in  a  previous  chapter.1 

The  movement  of  both  price  and  surplus,  according  to  this 
law,  was  shown  in  diagram  2  (p.  206),  which  for  convenience  is 
here  reproduced   and  may  be  assumed  to  represent  six  manu- 
facturers of  cotton  cloth  of  the  same  quality. 
1  Part  III.,  chapter  iv. 


EVOLUTION  OF  PROFIT. 

NO.    4. 


259 


PROFIT. 

PRICE. 

ACTUAL  COST. 

COST  SAVED 
BY  CAPITAL. 

I    C. 

1    c- 

|c. 

*    r 
J    C. 

i  c- 

O    C. 

4  c. 
4  c. 
4  c. 
4  c. 
4  c. 
4  c. 

Minimum  cost     ....      30. 

3, 

Source 

R            of 
gi"^        Profits. 

ai  c. 

•} 

4 

c. 

Maximum  cost    

It  will  be  seen  that  A,  who  represents  maximum  cost,  produces 
his  cloth  at  four  cents  a  yard  and  sells  it  at  four  cents.  He  occu- 
pies the  same  position  that  Marx's  capitalist  did — he  sells  at  cost 
and  has  no  profit.  If  the  case  of  A  was  considered  alone,  or  if 
he  was  an  exact  duplicate  of  all  other  manufacturers,  then  the 
result  would  be  exactly  what  Marx  found,  and  there  could  be  no 
profit  without  either  raising  the  price  to  the  consumer  or  reducing 
wages.  But  it  is  precisely  because  A  is  not  a  duplicate  of  the 
others  that  to  consider  him  alone  leads  to  an  erroneous  con- 
clusion. It  is  only  because  the  others  produce  under  conditions 
different  from  A,  while  being  able  to  sell  at  the  same  price,  that 
they  obtain  any  profit,  which  is  what  everywhere  takes  place. 

It  will  be  observed  that  the  only  point  of  uniformity  among  the 
six  manufacturers  is  the  selling  price.  They  all  obtain  the  same 
price  for  their  cloth,  but  each  one  has  a  different  amount  of 
profit,  because  he  produces  at  a  different  rate  of  cost.  Just  to 
the  extent  that  the  amount  in  each  case  on  the  cost  side  is 
diminished,  does  that  on  the  surplus  or  profit  side  increase — 
that  is  to  say,  directly  as  the  cost  line  of  B,  C,  D,  E,  and  F 
recedes  from  that  of  A  on  the  right  does  the  amount  increase  in 
the  profit  column  on  the  left.  It  will  also  be  observed  that  the 
increase  in  the  profit  column  in  no  way  affects  the  price  column. 

Thus  it  appears,  when  we  study  production  as  it  actually  occurs, 
that  profits  can  arise  without  injustice.  In  the  case  of  the  six 
competing  manufacturers,  who  correctly  represent  modern  in- 
dustry under  free  competition,  all  the  conditions  of  economics 
and  ethics  are  fulfilled  ;  equivalent  is  given  for  equivalent,  price 
equals  cost,  and  profit  is  produced.  If  it  is  asked  why  B,  C,  D, 


260  EQUITY  OF  ECONOMIC  PROFIT. 

E,  and  F  should  receive  the  same  price  for  their  cloth  as  A,  when 
they  can  make  it  at  a  less  cost,  the  answer  is  that  they  furnish  the 
same  equivalent  for  what  they  receive  that  he  furnishes.  To  give 
A  more  than  four  cents  a  yard  would  be  both  inequitable  and 
uneconomic  ;  inequitable  because  it  would  be  giving  more  than 
an  equivalent  for  the  cloth  ;  uneconomic  because  it  would  be 
adding  a  burden  to  the  consumer  in  order  to  give  a  premium  to 
the  most  incompetent  producer,  thereby  destroying  the  incentive 
for  developing  improved  methods  of  production.  All  that  the 
consumer  can  in  equity  demand  or  by  economic  law  exact  from 
the  producer  is  that  he  shall  obtain  the  full  equivalent  of  his  four 
cents.  This  he  obtains  from  B  and  from  all  the  others  as  com- 
pletely as  from  A.  The  only  difference  between  the  producers  is 
that,  from  causes  peculiar  to  themselves,  some  of  them  make  na- 
ture do  more  than  others.  Nature  does  one  fourth  more  for  F 
than  for  A,  but  they  all  do  precisely  the  same  for  the  consumer  ; 
they  all  give  him  a  yard  of  exactly  the  same  quality  of  cloth  for 
four  cents.  The  consumer  has  no  claims  upon  B  which  A  is  not 
equally  bound  to  satisfy.  And  if  B  should  consent  to  sell  at 
three  and  four  fifths  cents  a  yard,  nobody  would  continue  to  buy 
from  A  at  four  cents.  There  is  no  principle  in  equity  which  de- 
mands that  B  or  C  or  D  or  E  or  F  shall  give  more  cloth  for  four 
cents  than  A  gives  ;  nor  is  there  any  law  in  economics  by  which 
they  can  be  made  to  do  so. 

Moreover,  profit  thus  evolved  is  not  merely  economic  and 
equitable,  but  it  is  actually  beneficial  to  the  community.  So  far 
from  being  obtained  by  exploiting  the  laborer,  it  is  the  premium 
offered  by  economic  law  for  the  invention  of  superior  methods  of 
production,  by  the  use  of  which  the  community,  including  the 
laborer,  obtains  a  larger  amount  of  wealth  for  the  same  service. 
It  is  the  community  that  ultimately  reaps  the  greatest  advantage, 
for  the  great  profits  of  F  constitute  an  incentive  to  increase  pro- 
duction, and  the  only  way  F  can  insure  the  sale  of  his  larger 
product  is  by  reducing  the  price  so  as  to  undersell  his  com- 
petitors. Just  as  frequently  as  this  occurs,  the  profit  of  the  last 
profit-man  is  handed  over  to  the  community  in  lower  prices. 
This  is  what  is  constantly  taking  place  as  fast  as  the  concentra- 
tion of  capital  is  increased  and  improved  methods  of  production 
are  employed.. 


SURPLUS   WAGES.  261 

It  is  clear,  therefore,  that  the  profits  of  B,  C,  D,  E,  and  F  are 
not  obtained  at  the  expense  of  equity.  They  pay  the  same  wages 
and  fulfil  all  the  other  economic  requirements  just  as  completely 
as  does  A,  or  as  do  the  shoemaker  and  the  farmer,  with  whom  they 
exchange  their  product.  Just  as  fast  as  the  dearest  man  is  under- 
sold these  profits  are  passed  to  the  public  ;  and  the  only  means 
by  which  the  consequent  diminution  of  profits  can  be  checked  is 
by  capital  making  another  draught  upon  nature.  Thus  capital, 
through  the  incentive  of  profit,  becomes  the  constant  means  of 
exploiting  nature  for  the  benefit  of  society — instead  of  exploiting 
the  laborer  and  consumer  for  the  benefit  of  the  capitalist,  as  Marx 
and  his  disciples  so  persistently  claim. 

If  we  pass  to  the  sphere  of  labor  we  find  that  the  Ricardian- 
Marx  theory  is  as  inadequate  to  explain  the  facts  there  as  it  is  in 
the  case  of  commodities.  Marx  admits  that  the  value  of  labor 
power  is  determined  by  the  cost  of  its  production,  just  as  is  the 
value  of  commodities.  According  to  this  hypothesis,  the  value 
of  every  pound  of  yarn  must  be  equal  to  the  sum  ot  values  that 
enter  into  its  production,  the  value  of  every  day's  labor  must  be 
equal  to  the  sum  of  values  that  enters  into  its  production — />., 
the  wages  of  every  laborer  must  be  equal  to  the  cost  of  his  own 
living.  Now  we  know  that  in  every  industry  the  wages  of  the 
same  class  of  laborers  tend  to  a  uniformity  while  the  cost  of 
living  of  the  individual  laborers  varies  greatly.  For  example,  we 
know  that  in  New  York  City  painters,  carpenters,  bricklayers, 
cigarmakers,  tailors,  etc.,  who  work  on  the  same  grade  of  work 
or  in  the  same  shop  get  the  same  wages,  but  individually  the  cost 
of  their  living  varies  in  some  cases  several  dollars  a  week.  On 
the  Marxian  hypothesis,  that  the  capitalist  who  sells  his  yarn  for 
more  than  it  costs  him  exploits  some  of  the  factors  of  production, 
the  laborer  who  obtains  more  for  his  labor  than  it  cost  him  must 
also  have  exploited  some  other  factor.  Marx  would  object  to 
charging  the  laborer  with  robbery  ;  his  purpose  is  to  prove  the 
other  man  the  thief.  Yet,  if  it  is  a  law  in  economics  that  the 
possession  of  a  surplus  proves  exploitation,  then  a  surplus  in  the 
hands  of  the  laborer  who  has  sold  his  labor  power  for  more  than 
it  cost  him  is  as  conclusive  evidence  of  exploitation  as  is  a  sur- 
plus in  the  hands  of  the  capitalist  who  has  sold  his  commodity 
for  more  than  it  cost  him.  Scientific  law  does  not  discriminate 


262  PRODUCT  PROFIT  AND    WAGES. 

between  individuals  ;  there  is  no  operation  of  natural  law  under 
which  the  laborer  is  an  honest  man  and  the  capitalist  a  thief, 
when  both  are  doing  the  same  thing.  A  theory  which  thus  puts 
vice  at  a  premium  and  virtue  at  a  discount  by  showing  that 
none  but  thieves  succeed  and  that  the  only  reward  for  honesty  is 
failure  and  poverty,  should  only  need  stating  to  be  rejected. 

SECTION  V. —  The  Ratio  of  Profit  to  Product  and  to  Wages. 

One  of  the  most  prevalent  assumptions  regarding  profit  is,  that 
it  takes  an  inordinately  large  proportion  of  the  product.  The 
point  upon  which  Marx  lays  exceptional  stress  is  that  profit  prac- 
tically equals  wages.  Although  few  careful  writers  would  now 
venture  to  contend  that  wages  are  actually  diminishing,  the  idea 
of  Rodbertus,  that  the  laborer's  share  of  the  product  diminishes 
as  his  productiveness  increases,  is  very  commonly  accepted. 
How  much  of  the  product  goes  to  profit  and  the  ratio  of  profit  to 
wages  are  mainly  questions  of  fact ;  it  is  therefore  to  facts 
that  we  must  turn  for  any  satisfactory  explanation  of  the  sub- 
ject. 

If  the  law  of  prices  and  wages  presented  in  these  pages  is 
sound,  and  its  corollary  of  the  law  of  surplus  (rent,  interest,  and 
profit)  is  correct,  we  may  expect,  under  modern  productive  con- 
ditions, to  find  three  important  facts  :  (i)  that  real  wages  (wealth 
obtainable  for  a  day's  service]  tend  to  increase  both  actually  and  rela- 
tively to  the  quantity  of  consumable  wealth  produced  ;  (2)  that,  while 
the  surplus  or  profit  increases  in  its  actual  amount,  it  diminishes 
relatively  to  the  aggregate  net  product  j  that  is  to  say,  profit  absorbs 
a  diminishing  proportion  of  the  consumable  wealth  produced  ;  (3) 
that  the  ratio  of  wages  to  profits  tends  to  increase,  and  that  both  the 
actual  amount  of  consumable  wealth  and  the  relative  proportion  of 
the  net  product  which  goes  to  labor  are  greater  than  the  amount  which 
goes  to  capital,  and  that  this  tendency  increases  as  the  concentration  of 
capital  and  the  use  of  improved  methods  advance. 

\.  Is  the  proposition  that  real  wages  tend  to  increase  both 
actually  and  relatively  to  the  quantity  of  consumable  wealth  pro- 
duced, sustained  by  the  facts  ?  Fortunately,  the  industrial  history 
of  the  present  century  affords  ample  data  for  a  conclusive  answer 
to  this  question.  Let  us  take  the  cotton  industry,  which  by  this 


THE   COTTON  INDUSTRY.  263 

time  the  reader  has  become  quite  familiar  with.  Moreover,  this 
industry  affords  an  excellent  illustration  of  the  principles  under 
consideration,  because  it  is  a  very  extensive  industry.  It  is  also 
completely  representative  of  the  factory  system,  and  as  such  has 
been  in  existence  longer  than  almost  any  other  industry.  At  the 
commencement  of  the  present  century  the  weaver  could  only  buy 
ten  yards  of  cloth  with  a  week's  wages.  To-day  (1890)  he  can 
obtain  a  hundred  and  fifty  yards  of  his  own  product  for  a  week's 
wages,  while  working  about  thirty  hours  less  per  week.  That  is 
to  say,  through  a  rise  in  his  wages  and  a  fall  in  the  price  of  the 
product,  he  is  able  to  obtain  fifteen  times  as  much  of  his  own 
product  for  a  day's  work  in  1890  as  he  could  obtain  in  1800. 
The  factory  period  in  this  country  really  dates  from  about  1830. 
From  that  time  to  1880  the  investment  of  capital,  the  number  of 
establishments,  the  amount  and  price  of  product,  and  the  wages 
paid  in  that  industry  were  as  follows  : 

1830.  1880. 

Number  of  establishments 801  756 

Aggregate  capital  invested $40,612,984          $208,280,346 

Number  of  Ibs.  cloth  produced 59,514,926  607,264,241 

persons  employed 62,208  172,544 

spindles        "          1,246,703  10,653,435 

Amount  of  capital  to  establish $50,702  $275,503 

Ratio  of  Ibs.  produced  to  capital 1.4  to  $1.00  2.4  tofi.oo 

"       capital  to  persons  employed $652.85  to  i         $1,207.17  to  I 

"       spindles  to  persons          "         22  to  I  62  to  I 

"       capital  to  spindles  "         $32.58101  $19.55101 

"       Ibs.  produced  to  persons  employed 950.7  to  i  3,519-5  to  I 

"  spindles 47.6  to  1 .  57.0  to  i 

Annual  consumption  of  Ibs.  of  cotton  cloth  per  capita. .  .5.90  13.81 

Price  of  cotton  cloth  per  yard 17  cents  7  cents 

Operative's  wages  per  week $2.55  $5-4° 

It  will  be  seen  that  in  the  756  large  establishments  in  1880  in 
which  the  aggregate  capital  invested  was  five  times  as  great  as 
that  in  the  80 1  small  establishments  in  1830,  the  capital  invested 
per  spindl-e  was  one  third  less,  the  number  of  spindles  operated 
by  each  laborer  nearly  three  times  as  large,  the  product  per 
spindle  one  fourth  greater,  the  product  per  dollar  invested  twice 
as  large,  the  price  of  the  cotton  cloth  nearly  sixty  per  cent,  less, 
the  consumption  per  capita  of  the  population  over  one  hundred 
per  cent,  greater,  and  wages  more  than  double. 


264  PURCHASING  POWER   OF    WAGES. 

If  we  take  the  New  England  States,  which  comprise  the  leading 
cotton-manufacturing  district  in  the  country,  and  also  that  where 
the  greatest  concentration  of  capital  and  machinery  in  this 
industry  has  taken  place,  the  results  in  this  direction  are  still 
more  striking.  According  to  the  statistics  on  wages  and  prices 
from  1752,  gathered  by  the  Massachusetts  Labor  Bureau,1  in 
1831  the  ratio  of  spindles  to  operatives  was  24TfT  to  i.  In  1880 
they  were  7iy{hy  to  i.  And  the  ratio  of  pounds  of  product  to 
operatives  employed  in  1831  was  1,484  to  i,  and  in  1880  it 
was  3,633  to  i.  That  is  to  say,  during  fifty  years  the  ratio  of 
spindles  to  operatives  increased  184  per  cent.,  and  the  ratio  of 
product  to  operatives  145  per  cent.  During  the  same  period 
the  aggregate  wages  of  men,  women,  and  children  rose  115  per 
cent.,  and  the  hours  of  labor  were  reduced  12  p'er  cent.,  while 
the  price  of  calico  print  fell  from  17  to  7  2  cents  a  yard.  Thus, 
while  the  wages  in  this  industry  rose  115  per  cent.,  the  purchasing 
power  of  those  wages  in  the  finished  product  increased  241 
per  cent.  ;  that  is  to  say,  through  a  rise  of  wages  and  fall  in 
prices  accompanying  the  concentration  of  capital  and  use  of 
improved  methods,  the  laborer  was  enabled  to  obtain  over  five 
times  as  much  of  his  own  product  for  a  day's  labor  in  1880  as  he 
did  in  1830 — the  increase  is  still  greater  now  (1890). 

If  we  consider  the  matter  from  the  standpoint  of  value 
instead  of  quantity  of  product,  a  similar  result  is  apparent. 
In  1850°  the  value  of  the  product  per  operative  in  New  Eng- 
land was  $707  ;  in  1880  it  was  $1,139  per  operative,  an  increase 
of  61-^5*5-  per  cent.  The  wages  in  this  industry  for  1850  for  New 
England  are  not  obtainable,  but  if  we  assume  that  the  proportion 
of  the  1 15  per  cent,  increase  from  1830  to  1880  was  as  great  after 
as  before  1850,  a  perfectly  safe  assumption,  the  rise  in  wages 
from  1850  to  1880  would  be  69  per  cent.  Measured  in  money, 
therefore,  the  value  of  labor  (wages)  of  cotton  operatives  rose  8 
per  cent,  more  than  the  value  of  their  product.  If  we  extend  this 
generalization  to  the  whole  United  States  the  result  is  very 
similar.  The  value  of  product  per  operative  in  the  cotton 
industry  in  1850  was  $709,  and  in  1880  it  was  $1,112,  being  an 

1  Report  for  1885,  pp.  185-189. 

2  Ibid.,  p.  455- 

1 1  have  taken  1850  because  the  value  for  1830  is  not  obtainable. 


MR.    GIFFEN  ON    WAGES    AND  PRODUCT.  26$ 


increase  of  56£fal  Per  cent.,  or  12  per  cent,  less  than  the  rise  of 
wages.  Therefore,  whether  we  view  the  question  from  the 
standpoint  of  quantity  of  wealth,  purchasing  power  of  wages,  or 
the  ratio  of  wages  to  product,  it  is  equally  clear  that  wages  have 
increased  both  actually  and  relatively  to  the  quantity  of  con- 
sumable wealth  produced,  as  capital  has  been  concentrated  and 
as  improved  methods  of  production  have  been  employed. 

Notwithstanding  this  rise  of  wages  and  fall  of  prices,  it  is 
insisted  that  the  laborer  is  despoiled  of  a  large  part  of  the  wealth 
he  produces.  As  evidence  of  this  we  are  pointed  to  the  fact  that 
in  many  industries  the  product  per  laborer  has  increased  more 
than  a  thousand  per  cent,  during  the  last  fifty  years,  while  their 
wages  have  not  much  more  than  doubled.  This  claim  has  been 
virtually  conceded  by  Mr.  Giffen,  President  of  the  British  Statis- 
tical Society.  He  says  :  "  On  this  head  it  may  be  admitted,  to 
begin  with,  that  there  is  apparent  foundation  for  some  of  the 
complaints.  Workmen  in  particular  employments  do  not  get  a 
reward  at  all  in  proportion  to  the  increase  of  production  in  those 
employments.  The  illustration  of  a  cotton-mill  is  familiar.  A 
single  attendant  on  a  number  of  machines  will  'produce'  as 
much  in  an  hour  as  formerly  in  a  year  or  two,  but  his  wages  are 
only  double  —  or  perhaps  not  quite  double  —  what  they  were  when 
the  production  was  so  much  less.2  .  .  .  But  the  increased  severity 
of  toil,  without  proportionate  remuneration,  might  be  admitted 
in  those  special  employments  without  altering  the  fact  that 
remuneration  has  increased  generally.  What  seems  to  have 
happened  in  these  cases  is  that  the  development  of  society 
imposes  a  heavy  burden  on  a  special  class."3  While  he  tries  to 
break  the  force  of  this  complaint  by  showing  that  remuneration 
has  increased  generally,  he  practically  admits  the  injustice,  and 
treats  it  as  an  inherent  element  in  the  present  industrial  constitu- 
tion of  society.  This  is  all  that  socialistic  reconstructionists 
claim  ;  it  is  because  they  believe  that  equity  is  impossible  under 
the  present  industrial  system  that  they  demand  its  abolition. 
Nor  can  their  claim  be  reasonably  resisted  unless  these  phe- 
nomena can  be  explained  without  assuming  either  that  society 

1  See  U.  S.  Census  (1880),  volume  on  Manufactures,  pp.  541-547. 

2  "  Gross  and  Net  Gain  of  Rising  Wages,"  Contemporary  Review,  December, 
1889,  p.  835.  *  Ibid.,  p.  838. 


266  MR.    GfFFEN'S  ERROR. 

has  developed  in  the  wrong  direction  or  that  natural  law  is 
inherently  unjust. 

Here  is  another  instance  of  the  error  of  treating  wages  as  a 
share  in  the  division  of  the  product,  instead  of  an  item  in  the  cost 
of  production.  If  this  view  were  correct,  and  wages  in  each 
industry  should  rise  directly  as  the  product  per  laborer  increases, 
as  Mr.  Giffen's  argument  implies,,  the  result,  instead  of  being  more 
equitable,  would  be  unjust  to  the  laborers  and  more  inimical  to 
society.  It  would  be  unjust  to  the  laborers  because  it  would 
give  all  the  increased  product  resulting  from  improved  machinery 
to  the  particular  laborers  who  happen  to  use  the  improved 
implements,  thus  depriving  the  laborers  in  non-machine-using 
industries  of  any  advantage  arising  from  superior  methods  of 
production.  Upon  what  principle  of  equity  should  a  weaver 
or  shoemaker  who  happens,  without  any  virtue  on  his  part,  to  use 
improved  instruments,  receive  fifty  or  a  hundred  times  as  much 
wages  as  the  bricklayer,  painter,  compositor,  and  other  hand- 
workers whose  industries  do  not  admit  of  the  use  of  steam-driven 
machinery  ?  Manifestly  any  industrial  system  which  would  in- 
crease the  wages  of  the  factory-worker  fifty  or  a  hundred-fold, 
while  it  would  only  advance  those  of  hand-workers  ten  or  twenty 
per  cent.,  simply  because,  in  the  nature  of  the  occupations,  the 
former  could  and  the  latter  could  not  use  labor-saving  machinery, 
would  be  the  very  embodiment  of  injustice. 

It  would  be  inimical  to  society,  because  it  would  make  any 
general  reduction  in  the  price  of  commodities  impossible,  as  the 
increased  wealth  would  all  go  to  the  particular  laborer  who  used 
improved  machinery,  thus  depriving  the  community  in  general  of 
any  participation  in  the  advantages  of  industrial  development. 
It  is  hardly  necessary  to  say  that  the  use  of  steam-driven 
machinery  is  no  more  due  to  the  particular  operatives  who  use  it 
than  it  is  to  the  millions  of  compositors,  bricklayers,  farmers,  and 
other  laborers  who  do  not  use  them.  In  the  first  place,  it  is  the 
consumption  not  of  the  machine  workers  merely,  but  of  the  whole 
community  that  supplies  the  market  which  makes  the  use  of  the 
factory  methods  possible.  And  in  the  second  place,  it  is  the 
inventive  genius  developed  by  an  advancing  civilization,  to- 
gether with  the  capital  invested  in  the  production  of  machinery 
to  supply  the  need  thus  created,  that  furnishes  the  increased 


DISTRIBUTION  OF  BENEFITS.  267 

product.  Clearly  therefore,  if  only  the  wages  of  those  laborers 
were  increased  who  used  the  improved  instruments  the  market 
for  the  machine-made  products  would  be  too  small  to  enable 
factory  methods  to  be  profitably  employed.  Thus  a  system  which 
would  give  all  the  increased  product  resulting  from  improved 
instruments  to  the  particular  laborers  who  use  those  instruments 
would  not  only  be  highly  unjust,  but  would  defeat  itself  and 
arrest  the  industrial  progress  of  society. 

If  we  examine  the  case  of  machine-using  and  non-machine 
using  laborers  in  the  light  of  the  law  of  wages  and  prices 
heretofore  presented,  it  will  be  apparent  that  the  mere  fact  that 
the  laborer  produces  more,  has  practically  nothing  to  do  with 
what  he  shall  receive,  because  it  has  nothing  to  do  with  the  cost 
of  his  living.  The  amount  he  produces  by  a  day's  work  depends 
far  more  upon  the  kind  of  tools  he  uses  than  upon  his  personal 
quality.  A  twelve-year-old  child  in  a  New  England  factory  can 
spin  more  yarn  than  a  hundred  of  the  most  expert  spinners  that 
ever  lived  could  produce  with  a  spinning  wheel.  It  is  the  price 
of  the  product,  and  not  the  price  of  the  labor,  that  is  determined 
by  the  quantity  the  laborer  produces  in  a  day.  The  cost  of  his 
living  being  the  same  if  he  produces  twice  as  much,  the  cost  of 
production  and  hence  the  price  will  be  proportionately  reduced. 
Thus  any  improvement  of  productive  instruments  which  enables 
the  laborer  to  produce  more,  his  cost  of  living  being  the  same, 
will  show  itself  not  in  a  rise  of  his  wages,  but  in  a  fall  of  the 
price  of  the  commodities  he  produces. 

On  the  other  hand,  the  price  of  hand-made  commodities  rises 
in  proportion  as  the  laborers'  wages  increase.  It  thus  appears 
that  wages  are  determined  by  conditions  which  affect  the  charac- 
ter and  cost  of  the  laborer,  and  not  by  those  which  influence  the 
quantity  and  cost  of  the  product.  When  the  standard  and  cost 
of  living  of  the  compositor,  bricklayer,  painter,  etc.,  increase,  the 
community  has  to  pay  more  for  the  products  of  their  labor, 
because  there  is  not  much  improvement  in  the  tools  they  use  ; 
whereas  the  product  of  the  factory  worker  is  so  much  increased 
that,  although  his  wages  rise  as  much  as  those  of  other  laborers, 
the  cost  of  production  is  greatly  diminished.  That  is  why  the 
price  of  all  httfid-made  products  tends  to  rise  while  that  of 
machine  or  factory-made  products  constantly  tends  to  fall.  It  is 


268  EQUITY  OF  ECONOMIC  LA  W. 

because  the  wages  of  the  hand-workers  have  increased  in  a 
greater  proportion  than  their  product  that  those  of  machine 
workers  have  increased  less  proportionately  to  their  product. 
By  this  means  the  disadvantage  of  inferior  and  the  advantage  of 
superior  instruments  is  distributed  uniformly  to  each  person  in 
the  community  to  the  extent  that  he  is  a.  consumer.  Thus  the 
two  prime  movements  of  industrial  progress,  the  rise  of  wages  and 
the  fall  of  prices,  benefit  laborers  in  all  occupations  and  condi- 
tions directly  as  their  wealth-consuming  capacity  increases  and 
social  character  rises. 

It  will  be  observed  that,  from  this  point  of  view,  the  case  of  the 
workman  to  whom  Mr.  Giffen  referred  as  not  getting  "  a  reward 
at  all  in  proportion  to  the  increase  of  production,"  appears 
entirely  different.  What  to  him  appeared  to  be  a  necessary  in- 
justice is  in  reality  the  e'vidence  of  the  supreme  equity  of 
economic  law.  The  increased  product  being  mainly  due  to  the 
use  of  capital  and  improved  tools,  which  has  been  made  possible 
through  the  use  of  increased  consumption  and  higher  social  life 
of  the  general  community,  it  is  to  the  community  in  general,  and 
not  to  particular  laborers  who  happen  to  use  those  tools,  that  the 
increased  product  in  equity  should  go,  and  by  economic  law  does 
go.  The  important  fact  that  cannot  be  too  much  emphasized 
here  is,  that  wages  are  paid  for  the  economic  cost,  and  hence  for 
the  social  quality  of  the  laborer.  It  is  therefore  what  the  laborer 
is  rather  than  what  he  does  that  determines  his  wages,  and  this  is 
true  without  regard  to  the  nature  of  his  occupation  or  the  quality 
of  his  tools. 

2.  This  brings  us  to  the  second  proposition,  that  profits  tend 
to  absorb  a  diminishing  proportion  of  the  consumable  wealth 
produced.  In  view  of  what  has  already  been  said,  a  discussion 
of  this  proposition  might  be  properly  deemed  unnecessary.  And 
were  it  not  that  one  of  our  most  trusted  statistical  authorities  has 
apparently  affirmed  the  opposite,  I  should  so  regard  it.  In  the 
report  of  the  Massachusetts  Bureau  of  Statistics  of  Labor  for 
1885  the  data  for  nine  industries  are  given,  which  show  that  the 
percentage  of  the  net  product  paid  as  wages  fell  from  59-^  per 
cent,  in  1850  to  48-^  per  cent,  in  1880,  and,  after  commenting 
upon  the  peculiarities  of  each  industry,  the  repot**  (p.  191)  says  : 

"  An  examination  of  these  two  tables  would,  we  think,  lead  to 


RATIO   OF  PROFIT   TO  PRODUCT.  269 

the  conclusion  that,  although  in  every  case  money  wages  have 
considerably  increased,  yet  in  certain  industries  in  which  the 
principles  of  the  factory  system  (i.e.,  the  subdivision  of  labor,  co- 
ordination of  processes,  and  the  application  of  a  series  of  mutually 
dependent  and  practically  automatic  machines)  have  been  most 
effective,  such,  for  instance,  as  in  the  cotton  and  woollen  indus- 
tries, the  relative  share  of  net  product  gained  by  the  workmen 
tends  to  decrease.  That  is  to  say,  in  these  industries  perfection 
of  machines  and  processes  constantly  tend  to  create  a  larger 
product  with  less  capital,  and  the  ratio  of  increase  in  productive 
capacity  tends  to  outrun  the  ratio  of  increase  in  wages,  so  that 
of  this  larger  product  labor  obtains  a  less  relative  share." 

They  then  take  from  the  United  States  Census  the  same  data 
for  all  industries  in  the  country,  and  find  that  5 1  per  cent,  of  this 
net  product  was  paid  in  wages  in  1850  and  only  48^^  per  cent,  in 
1880,  and  say  :  "  It  appears  that  when  the  field  is  broadened  so 
as  to  include  the  entire  manufacturing  industries  of  the  country, 
labor's  share  of  the  net  product  has  declined  from  5 1  per  cent, 
to  48^  per  cent." 

In  view  of  such  emphatic  statements  apparently  sustained  by 
facts  from  such  a  reliable  source,  it  can  hardly  be  a  matter  of  sur- 
prise that  it  is  generally  believed  that  wages  obtain  a  constantly 
diminishing  and  profit  gains  an  increasing  proportion  of  the 
wealth  produced.  It  is  important,  therefore,  even  at  the  risk  of 
being  a  little  tedious,  to  examine  the  process  by  which  this  con- 
clusion is  reached.  Nor  will  this  be  very  difficult,  since  both  the 
data  and  the  method  of  treatment  are  amply  stated.  The  method 
of  procedure  is  to  divide  the  product  into  gross  and  net  value, 
the  former  being  the  value  of  the  aggregate  product,  and  the 
latter  that  of  the  product  less  the  cost  of  the  raw  material.  This 
is  regarded  as  representing  the  net  value  created  by  the  joint 
operation  of  the  labor  and  capital  employed  in  the  enterprise.1 
If  a  diminishing  proportion  of  this  net  product  is  paid  as  wages, 
it  is  concluded  that  an  increasing  proportion  of  it  must  go  to 

1  "Net  product,  or  value  of  product  remaining  after  deducting  value  of  raw 
materials  of  manufacture,  represents  the  direct  result  of  the  productive  forces 
in  the  given  industry  ;  or,  in  other  words,  it  represents  the  value  created  over 
and  above  the  value  of  raw  materials  by  the  effective  operation  of  labor  and 
capital  united." — Report  of  Bureau  of  Statistics  of  Labor,  p.  190. 


2/0  DEFECTIVE  METHODS. 

profits.1  This  method  of  treating  the  subject  is  defective  in  two 
respects  :  (i)  in  regarding  the  ratio  of  the  total  wages  to  the 
net  product  (product  less  raw  material)  as  indicating  the  economic 
condition  of  the  laborer ;  (2)  in  assuming  that  a  diminution  in 
the  ratio  of  the  total  wages  to  this  net  product  necessarily  implies 
a  proportional  increase  of  profit. 

(i)  That  it  is  a  mistake  to  treat  the  ratio  of  the  aggregate 
wages  to  the  value  of  product  as  indicating  the  economic  condi- 
tion of  the  laborer,  is  shown  by  the  fact  that  this  ratio  may 
increase  and  the  laborer  grow  poorer,  and  it  may  diminish  while 
the  laborer's  condition  improves.  Take,  for  example,  the  hand- 
loom  weaver  and  the  factory  laborer.  After  deducting  the  raw 
material,  nearly  all  the  value  of  the  product  of  the  hand-loom 
weaver  went  to  wages  ;  while,  according  to  the  bureau's  figures, 
only  about  48  per  cent,  of  the  product  now  goes  to  wages,  yet  no 
one  would  pretend  that  the  hand-loom  weavers  were  in  a  better 
economic  condition  than  are  the  factory  operatives  to-day. 
Whether  the  amount  paid  for  labor  is  one  million  or  one  thou- 
sand millions  of  dollars  in  no  way  affects  the  laborer's  condition, 
except  as  it  gives  a  larger  amount  to  each  laborer.  The  same  is 
true  of  the  proportion.  Whether  the  80  or  90  per  cent,  of  the 
product  received  by  the  hand-weaver  gave  him  more  actually  or 
relatively  to  the  product  than  50  per  cent,  will  to-day,  depends 
entirely  upon  whether  it  is  paid  to  a  relatively  larger  or  smaller 
number  of  laborers.  If  the  aggregate  amount  paid  in  wages 
relatively  to  the  product  were  doubled,  and  either  the  number  of 
laborers  to  whom  it  was  paid  or  the  time  expended  in  producing 
it  with  the  same  laborers  was  more  than  doubled,  instead  of  indi- 
cating an  improvement  in  the  laborer's  condition,  it  would  show 
a  deterioration. 

Suppose  for  example,  that  under  hand  labor,  80  cents  out  of 
each  dollar's  worth  of  product  go  to  labor,  and  are  paid  to  20 
laborers,  the  ratio  of  wages  per  laborer  to  the  value  of  the 
product  will  be  as  4  cents  to  the  dollar  ;  whereas,  if,  under  the 
factory  system,  only  50  cents  out  of  every  dollar's  worth  of 
product  goes  to  labor,  if  it  is  all  paid  to  five  laborers,  the  ratio 
of  wages  per  laborer  to  the  value  of  the  product  would  be  as  10 
cents  to  the  dollar.  Thus  every  laborer  would  receive  relatively 

1  Ibid.,  p.  go. 


MISLEADING  DEDUCTIONS.  2? I 

to  the  product  created  two  and  a  half  times  as  much  with  the  50 
per  cent,  under  factory  production  as  with  the  80  per  cent,  under 
hand  labor.  Now  this  is  precisely  what  has  occurred  in  the 
development  of  factory  methods  of  production.  Clearly  there- 
fore, it  is  not  the  proportion  between  the  aggregate  wages  and 
the  product,  but  the  proportion  between  the  amount  paid  to  each 
laborer  and  the  product  that  indicates  his  economic  condition. 
In  other  words,  it  is  the  rate  and  not  the  aggregate  amount  of 
wages  that  is  the  true  basis  of  comparison,  because  it  is  the  rate 
of  wages  only  that  affects  the  laborer's  economic  status,  either 
actually  or  relatively. 

(2)  The  assumption  that  a  diminution  in  the  ratio  of  aggre- 
gate wages  to  the  so-called  net  product  necessarily  implies  a  pro- 
portional increase  of  profits  is  also  a  mistake.  The  fact  that  51 
per  cent,  of  the  net  product  was  paid  in  wages  in  1850  and  only 
487^  was  so  paid  in  1880,  does  not  prove  that  the  percentage  of 
the  product  going  to  profit  has  increased  ;  on  the  contrary,  this 
might  occur  and  profit  be  greatly  reduced  or  annihilated  alto- 
gether. All  this  fact  reveals  is  that  in  1880  the  total  amount 
paid  in  wages  represented  2TV  per  cent,  less  of  the  value  of  the 
product,  after  deducting  value  of  raw  material,  than  it  did  in 
1850  ;  but  this  does  not  show  that  more  of  the  remaining  5iyV 
per  cent,  of  the  product  went  to  profit.  Until  that  remaining 
portion  is  accounted  for,  there  can  be  no  more  warrant  for  saying 
that  it  went  to  profit  than  that  it  went  to  the  moon.  The  only 
condition  under  which  the  amount  of  one  item  can  be  properly 
inferred  from  that  of  another  is  when  the  two  represent  the  whole, 
or  when  the  amount  they  do  not  represent  is  a  known  fixed 
quantity.  Since  all  the  product,  less  raw  material,  is  not  divided 
between  wages  and  profit,  the  inference  that  the  ratio  of  profit  to 
net  product  increases  because  that  of  wages  is  diminished  can 
only  be  valid  when  all  the  other  items  are  definitely  ascertained. 
That  this  has  not  been  done  in  the  present  instance  is  shown  by 
the  following  statement :  "  The  value  of  net  product  forms,  as 
we  have  said,  a  fund  divisible  into  interest  on  capital,  interest  on 
loans,  insurance,  freights,  rents,  commissions,  wages,  and  profits. 
Now  if  the  relative  share  paid  in  labor  in  the  form  of  wages  is 
decreased,  it  is,  of  course,  obvious  that  the  share  remaining  for 
the  other  purposes  mentioned  is  increased.  If  capital  is  also 


2/2  OMITTED   DATA. 

relatively  decreased,  then  it  is  fair  to  suppose  that  the  share 
chargeable  to  interest  is  also  diminished.  It  is  well  known  that 
the  relative  cost  of  freights  and  insurance  has  decreased." 

It  will  be  observed  that  the  above  not  only  fails  to  definitely 
explain  the  relative  amount  of  the  other  items  in  the  cost  of  pro- 
duction and  thereby  obtain  the  proportion  going  to  profit,  but  it 
omits  some  items  altogether.  In  the  first  place,  it  only  accounts 
for  a  portion  of  the  amount  which  is  paid  for  service,  no  account 
being  taken  of  salaries  of  managers  and  other  overseers,  and 
agents,  which  are  a  part  of  the  payment  to  labor,  and  are  included 
in  the  cost  of  production  as  much  as  the  day-wages  of  the  laborers 
in  the  shop.  In  the  next  place  it  omits  entirely  the  depreciation 
of  capital,  which  is  also  a  necessary  item  in  the  cost  of  produc- 
tion. The  items  thus  unaccounted  for  necessarily  go  to  swell  the 
undivided  surplus  which  is  put  down  as  profit.  By  this  means  it 
may  be  made  to  appear  that  a  large  profit  exists,  when  in  truth 
there  has  been  a  dead  loss,  and  when  a  profit  does  actually  exist 
this  method  of  investigation  will  invariably  make  it  appear  very 
much  larger,  sometimes  more  than  double  what  it  really  is."  Both 
these  items  of  cost  affect  the  result  in  two  ways.  In  the  first 
place,  other  things  being  the  same,  they  both  reduce  the  undivided 
surplus  going  to  profit  to  the  full  extent  of  their  amount.  In  the 
next  place,  they  both  absorb  an  increasing  proportion  of  the 
net  product  in  proportion  as  factory  methods  of  production  are 
increased. 

It  is  impossible  to  state  the  exact  proportion  of  the  net  product 
paid  in  salaries  in  the  different  periods,  because  that  item  has 
been  entirely  omitted  by  all  industrial  statistics  until  the  Massa- 
chusetts Census  for  1885.  According  to  this  report,  the  total 
amount  paid  in  salaries  in  that  State  in  1885  was  $10,846,367, 
which  was  equal  to  3yV<j  Per  cent,  of  the  value  of  the  net  product. 
In  order  correctly  to  understand  this  data,  however,  it  must  be 
observed  that  this  amount  was  all  paid  by  less  than  10  per  cent,  of 
the  establishments.  That  is  to  say,  out  of  the  23,431  manufac- 
turing establishments  only  2,144  Paid  salaries,  and  of  these  949 
were  corporations.  The  949  corporations  own  an  aggregate  capi- 
tal of  $300,649,758,  or  an  average  of  $316,806  each,  while  the 

1  Report  of  the  Bureau  of  Statistics  of  Labor,  Mass.  (1885),  pp.  190,  191. 
*  A  case  of  this  kind  appears  in  the  2Oth  vol.  of  the  Census,  1880,  pp.  in,  112. 


EVOLUTION  OF  SALARIES.  273 

22,482  private  concerns  have  an  aggregate  capital  of  only  $199,- 
944,619,  or  an  average  of  $8,893.  ^n  other  words,  the  949  cor- 
porations, which  only  represent  4Tf-g-  per  cent,  of  the  establish- 
ments, own  6oT$T  per  cent,  of  the  capital,  use  36^$  per  cent,  of 
raw  material,  produce  35-nnr  per  cent,  of  the  finished  product, 
employ  4oT^47  per  cent,  of  the  laborers,  and  pay  36T6<5sg-  per  cent, 
of  the  total  wages.  Thus  it  is  quite  clear  that  the  salaries  are 
nearly  all  paid  by  the  large  concerns,  over  90  per  cent,  of  the 
smaller  ones  not  paying  any  salaries  at  all. 

In  1850  the  average  amount  of  capital  invested  per  manufac- 
turing establishment  for  the  whole  country  was  $4,334,  or  only 
about  half  the  amount  that  is  invested  in  the  average  establish- 
ments in  Massachusetts  to-day  which  pay  no  salaries.  In  1880 
the  capital  invested  in  the  average  establishment  was  $10,991. 
Thus,  while  it  is  impossible  from  these  data  to  ascertain  the  exact 
ratio  of  increase,  it  is  obvious  that  the  amount  paid  in  salaries 
becomes  an  increasing  proportion  as  the  concentration  of  capital 
into  large  establishments  increases.  Since  the  SyW  per  cent,  of 
the  net  product  paid  in  salaries  in  Massachusetts  (which  may  be 
taken  as  representative  of  the  whole  country,  though  it  is  prob- 
ably a  fraction  higher)  is  practically  all  paid  by  concerns  having 
a  capital  of  $250,000  or  upwards,  it  is  quite  safe  to  assume  that 
not  more  than  one  fourth  as  much  was  paid  in  1850,  when  the 
average  amount  of  capital  per  establishment  was  only  $4,334.  To 
estimate  this  item  as  representing  one  per  cent,  of  the  net  product 
in  1850,  will  therefore  be  quite  liberal.  Of  the  remaining  2T\0Tr 
per  cent,  which  this  item  has  increased  since  1850,  i£  per  cent, 
may  safely  be  assigned  to  the  period  from  1850  to  1880,  which 
alone  accounts  for  more  than  one  half  of  the  apparent  relative 
decrease  in  wages. 

The  other  omitted  item,  the  depreciation  of  capital,  affects  the 
result  in  a  still  greater  degree.  This  also  has  hitherto  been 
entirely  overlooked  in  all  our  industrial  statistics,  but  taking 
twenty  corporations  together  in  four  different  industries  for  eight 
years  successively,  I  find  the  general  depreciation  of  plant, 
machinery,  buildings,  etc.,  together  with  transient  repairs,  equals 
about  six  per  cent,  on  the  capital  invested.  Nor  does  this  repre- 
sent all  the  depreciation  of  capital.  Every  improvement  in 

machinery  which  makes  a  considerable   saving  in  the  cost  of 
18 


2/4  DEPRECIATION  OF  CAPITAL. 

production,  and  reduces  the  selling  price  of  the  commodity, 
throws  out  of  use  a  large  amount  of  machinery  that  was  previ- 
ously producing  under  conditions  which  barely  repaid  the  cost. 
It  is  a  common  thing  for  millions  of  dollars'  worth  of  capital  to 
be  almost  annihilated  at  a  single  stroke  in  this  way.  In  the  iron 
industry  it  is  a  frequent  experience  that  the  machinery  of  whole 
factories,  which,  so  far  as  its  normal  productive  capacity  is  con- 
cerned, is  in  excellent  condition,  is  reduced  to  the  value  of  old 
iron  by  the  introduction  of  superior  machinery  in  a  competing 
factory.  The  percentage  of  depreciation  from  this  cause  increases 
just  in  proportion  as  new  methods  of  production  are  introduced. 
While  there  are  no  accurate  statistics  of  this  kind  of  depreciation, 
it  may  safely  be  assumed  to  equal  one  sixth  of  the  normal 
depreciation,  making  the  depreciation  of  capital  from  all  sources 
fully  7  per  cent.  Since  the  ratio  of  capital  invested  to  the  value 
of  the  net  product  in  1850  was  as  $1.15  to  $i,  the  depreciation 
of  capital  would  represent  8  per  cent,  of  the  net  product.  In 
1880  the  ratio  of  capital  invested  to  the  value  of  the  net  product 
had  reached  .41  to  $i.  Consequently,  the  depreciation  repre- 
sented 9TW  Per  cent,  of  the  net  product,  an  increase  of  lyV0^  per 
cent.  Thus,  on  a  very  moderate  estimate,  the  relative  increase 
of  the  two  items  omitted  in  the  Census  returns  more  than  offsets 
the  seeming  proportional  decrease  in  wages.  Consequently, 
assuming  other  items  of  cost  to  have  remained  the  same,  instead 
of  wages  having  decreased  Zy9^  per  cent,  relatively  to  the  net 
product  from  1850  to  1880,  they  have  actually  increased  ^fo  of 
i  per  cent. 

If  we  take  the  data  down  to  1885,  which  the  ample  statistics 
for  Massachusetts  now  enable  us  to  do,  the  evidence  that  an 
increasing  percentage  of  the  net  product  goes  for  service  becomes 
more  conclusive.  According  to  these,  in  23,431  establish- 
ments, with  a  capital  of  $500,594,377,  producing  $574,634,269 
worth  of  product,  the  amount  paid  in  wages  equalled  about 
5ijVo  per  cent,  of  the  value  of  the  product,  less  the  value  of  raw 
material.  The  ratio  of  capital  invested  per  dollar  of  net  product 
was  $1.75  to  $i.  The  depreciation  of  capital  represented  i2T2T/\r 
per  cent,  and  salaries  3y8o05~  Per  cent.  Taking  the  period 
from  1850  to  1885,  and  putting  salaries  with  wages — where  they 
properly  belong,  for  they  are  the  payment  for  service  precisely 


RELATIVE   DECREASE    OF  PROFIT. 


275 


the  same  as  wages,  the  only  difference  being  that  one  is 
estimated  by  the  year  and  the  other  by  the  day  or  week, — the  case 
stands  as  follows : 


i8«;o.  .  . 

Per  cent,  of  net  product  paid 
for  service. 

Ratio  of  capital  to 
$1  net  product. 

Per  cent,  of 
depreciation  in 
net  product. 

Wages. 

Salaries. 

Total. 

51. 
48.1 

51-7 

I. 

2-5 

3-8 

52. 
50.6 

55-5 

$1.15  to$i 
$1.41  to  $i 
$1.75  to  $i 

8. 
9.8 

12.2 

1880  

1885.,, 

Since  the  whole  amount  taken  in  depreciation  is  consumed  in 
maintaining  the  working  efficiency  of  the  plant,  it  not  only  does 
not  go  to  the  capitalist,  but  it  reduces  the  amount  of  net  product 
divisible  among  all  classes.  Thus  it  will  be  seen  that,  in  1850, 
after  deducting  the  proportion  paid  in  wages  and  salaries,  40  per 
cent,  remained  for  all  the  other  costs  and  profit.  After  making 
similar  deductions  in  1880,  only  S9To  Per  cent,  remained  for  the 
other  items  of  cost  and  profit,  and  in  1885  only  32T37  per  cent, 
remained  for  profits  and  other  costs.  It  is  obvious,  therefore, 
that  if  the  proportion  of  the  net  product  paid  in  rent,  taxes, 
insurance,  commissions,  freights,  etc.,  remained  the  same,  the 
proportion  going  to  profits  must  necessarily  have  decreased, 
though  its  aggregate  amount  may  have  increased.  ' 

A  close  examination  of  the  facts  would  undoubtedly  show,  as 
the  bureau  suggests,  that  the  relative  costs  of  freights  and  per- 
haps insurance  have  slightly  diminished.  It  must  be  remembered, 
however,  that  all  freight  charges  are  made  on  the  basis  of  quan- 
tity, as  so  much  per  ton.  If  estimated  on  the  value  of  the  product 
the  result  would  be  very  different.  For  example,  the  product 
per  operative  in  the  cotton  industry  measured  in  pounds  increased 
145  per  cent,  from  1830  to  1880,  but  measured  in  value  it  only 
increased  a  little  over  60  per  cent.  Thus  a  reduction  of  50  per 
cent,  in  the  cost  of  transportation  per  quantity  would  not  show 
any  reduction  per  dollar  of  value.  Assuming  that  profits  in  1850 
were  equal  to  10  per  cent,  of  the  net  product,  and  that  the 
proportion  of  the  net  product  paid  for  transportation  has 
since  decreased  2  per  cent.,  and  that  paid  in  taxes,  rents,  commis- 
sions, etc.,  has  remained  the  same — though  Carroll  D.  Wright 
thinks  they  have  actually  increased, — the  aliquot  parts  of  the 


2/6 


RELATIVE  INCREASE   OF  WAGES. 


net  product  going  to  service  and  profit  in  1850  and  1885  would 
be  as  follows  : 


Service. 

Other  costs. 

Depreciation. 

Profit. 

Total. 

1850   

C2. 

•3Q 

8. 

10. 

TOO 

1885  

cc.c 

28 

12.2 

4.  a 

IOO 

It  thus  appears  that,  although  the  proportion  of  the  net  product 
paid  for  service  has  only  increased  about  4  per  cent,  and  that 
paid  in  wages  less  than  i  per  cent.,  the  proportion  going  to  profit 
has  diminished  5TV  per  cent.  It  should  also  be  observed  in  this 
connection  that  the  value  of  raw  material,  which  represents  57 
per  cent,  of  the  total  value  of  the  product,  and  also  that  nearly 
all  the  other  costs,  representing  28  per  cent,  of  the  net  product, 
are  very  largely  made  up  of  wages.  Indeed,  if  we  take  the 
finished  product  and  trace  the  various  items  of  its  costs  back  to 
the  crude  raw  material,  we  shall  find  that  its  value  is  nearly  all 
finally  resolved  into  the  amount  paid  for  service.  The  reason 
the  proportion  paid  for  labor  in  the  last  stages  of  manufacture 
appears  to  represent  so  small  a  percentage  of  the  total  value  is 
(i)  because,  in  the  prior  stages  of  its  development,  so  much  of 
the  value  has  been  previously  paid  for  in  wages  ;  (2)  because,  in 
the  last  stages,  the  greatest  amount  of  capital  per  dollar  of  prod- 
uct is  employed,  and  consequently  a  greater  proportion  of  the 
product  created  in  that  stage  goes  to  depreciation  of  plant,  all  of 
which  must  of  necessity  be  eliminated  before  any  scientific  com- 
parison of  the  proportional  shares  going  to  wages  and  profit  in 
any  given  industry  can  be  made. 

Clearly  therefore,  in  order  to  ascertain  whether  or  not  the 
laborer  is  obtaining  an  increasing  or  a  diminishing  proportion  of 
the  consumable  wealth  produced,  we  must  compare  the  value  of 
what  goes  to  labor,  not  in  the  aggregate  but  per  laborer,  with  the 
value  of  the  product  after  deducting  the  cost  of  raw  material, 
depreciation  of  plant,  and  all  other  fixed  costs  incident  to  the 
increased  production.  From  this  method  of  examining  the  case 
it  will  appear  that,  in  each  given  stage  of  the  productive  process, 
as  the  concentration  of  capital  and  the  use  of  im  roved  methods 
of  production  are  employed,  the  laborer  receives  a  constantly 
increasing  proportion  of  an  increasing  product. 

3.  We  now  come  to  the  question  of  the  actual  ratio  of  wages  to 


DIFFICULTY  OF  OBTAINING  DATA.  2// 

profits  in  modern  industry.  It  is  assumed  by  socialistic  writers, 
as  already  shown  in  the  case  of  Marx,  that  under  the  present  in- 
dustrial system  profits  are  not  only  increasing  actually  and  rela- 
tively to  the  product,  but  that  they  approximately  equal  wages.1 
Since  this  is  wholly  a  question  of  fact  and  is  one  of  the  chief 
reasons  urged  for  revolutionizing  the  existing  industrial  system, 
it  may  be  well  to  compare  this  claim  with  the  facts  in  the  case. 
The  question  of  profits  and  wages  is  one  which  cannot  always  be 
settled  by  public  statistics  because  they  are  seldom  taken  in  such 
a  way  as  to  furnish  the  correct  data  upon  both  these  points.  As 
already  intimated  the  service  item  is  nearly  always  incomplete 
and  profits  are  seldom  given.  The  Massachusetts  Labor  Bureau, 
which  has  ever  been  the  best  source  of  reliable  industrial  data  in 
this  country,  made  an  extensive  investigation  of  the  subject  of 
profits  and  earnings  for  1875"  and  1880,  the  result  of  which  was 
published  in  their  report  for  1883.  The  results  of  this  investiga- 
tion, which  covered  14,352  establishments  in  80  industries,  show 
that  the  ratio  of  wages  *  to  profits  in  1875  was  as  zfifo  to  i,  and  as 
3^oV  to  *  in  1880. 

In  1889  I  made  extensive  investigations  on  the  same  points,  but 
instead  of  taking  a  large  number  of  industries  for  a  given  year  I 
took  a  limited  number  of  large  industries  for  a  number  of  years 
together.  It  will  readily  be  seen  that  the  normal  ratio  of  wages 
to  profits  will  be  much  more  accurately  indicated  by  taking  a  few 

1  "  There  is  left  the  sum  of  £3  IQJ.  od.,  which  is  the  variable  capital  advanced ; 
and  we  see  that  a  new  value  of  ^3  IOJ.  od  +  £3  us.  od.  has  been  produced  in 
its  place.  Therefore  ^  <  >3  "  *'  °^  '  giving  a  rate  of  surplus  value  of  more  than  one 
hundred  per  cent.  The  laborer  employs  more  than  one  half  of  his  working  day 
in  producing  the  surplus  value." — Marx,  "Capital, "p.  203.  "  Now,  gentle- 
men, if  you  compare  the  working  time  you  pay  for,  you  will  find  that  they  are 
to  one  another,  as  half  a  day  is  to  half  a  day  j  this  gives  a  rate  of  one  hundred 
per  cent.,  and  a  very  pretty  percentage  it  is." — Ibid.,  p.  211.  "  But  the  fact  is 
— and  on  that  we  lay  stress — that  the  workers  receive  only  about  half  of  what 
they  produce. " — Gronlund,  '' Modern  Socialism,"  p.  23. 

8  These  are  exclusive  of  Boston.  I  have  omitted  Boston  because  for  some 
unexplained  reason  the  net  product  in  Boston  fell  about  75  per  cent.  Such  a 
change  must  be  the  result  of  some  abnormal  occurrence  perhaps  in  a  few  indus- 
tries. Although  it  would  greatly  reduce  the  ratio  of  profits  to  wages  in  1880, 
rather  than  use  doubtful  results.  I  prefer  to  exclude  the  whole  of  Boston  data. 

a  Exclusive  of  salaries. 


278 


RATIO    OF  PROFITS    TO    WAGES, 


representative  concerns  for  a  considerable  number  of  years  to- 
gether, than  by  a  very  much  larger  number  of  concerns  for  a  sin- 
gle year.  For  instance,  the  complete  facts  for  ten  large  corpora- 
tions for  ten  years  together  will  much  more  accurately  show  the 
normal  ratio  of  wages  to  profits  in  that  industry  than  would  the 
facts,  equally  complete,  for  all  the  concerns  in  the  country  for  any 
given  date.  This  investigation  shows  that  the  ratio  of  wages  to 
profits  in  thirteen  leading  industries  for  a  number  of  years  to- 
gether,1 to  be  as  4.20  to  i.  Taking  the  basis  adopted  by  the 
Massachusetts  Bureau  for  1880,  the  relative  movement  of  profit 
and  wages  from  1850  to  1885  has  been  as  follows  : 

ALL    MANUFACTURING      INDUSTRIES      FOR     THE     UNITED    STATES. 


Percent- 

age of  raw 
material 

Percent- 

Percent- 

Value of  aggregate  product. 

and  fixed 
costs  in 

age  of 
wages  in 

age  of 
profits  in 

Average* 

yearly 

Ratio  of 
wages  to 

total 

total 

total 

wages. 

profits. 

product. 

product. 

product. 

1850  —  $1,019,106,616    .      . 

67.61 

23.23 

9.16 

$247-37 

2.  53*  to  I 

1860  —  1,885,861,676    .     . 

67.92 

20.09 

11.99 

288.94 

1.67  to  I 

1870  —  4,232,325,442    .     . 

71.79 

18.34 

9.87 

376.59 

1.85  to  I 

1880  —  5,369,579,191    .     . 

76.37 

17.67 

5.96 

346.91 

2.96  to  I 

ALL    MANUFACTURED    INDUSTRIES    FOR    MASSACHUSETTS.4 

1875—1456,400,458  .      .      . 

62.57 

27.06 

10.37 

$445.00 

2.6o8to  I 

1880  —  631,135,284.      .      . 

72.79 

21-75 

5.46 

364.00 

3.98  to  I 

1885—  674,634,269  .      .      . 

70.88 

23-45 

5.67 

388.62 

4.13  to  I 

1888— 

402.45 

THIRTEEN  LEADING  INDUSTRIES  FOR  8  YEARS  TOGETHER  TO  1 889. 
1889 — $112,393,804.98        .        67.98        25.93  6.09         4.20  to  I 


1  Ten  of  these  were  for  eight  years  in  succession,  two  for  ten  years,  and  one 
only  for  four  years. 

*  It  should  be  remembered  that  these  figures  do  not  represent  the  wages 
of  men,  but  the  average  wages  of  men,  women,  and  children  all  taken  together. 
Since  in  manufacturing  industries  there  is  generally  one  worker  besides  the  head 
of  the  family,  and  sometimes  more,  these  wages  only  represent  about  half  the  in- 
come of  the  average  family  in  these  industries. 

s  This  column  is  exclusive  of  salaries. 

4  Exclusive  of  Boston.  I  have  omitted  Boston  because  for  some  unexplained 
reason  profits  fell  from  an  aggregate  of  $27,640,680  in  1875  to  $7,162, 768  in 
1880.  Such  a  change  must  be  the  result  of  some  abnormal  occurrence  perhaps 
in  a  few  industries.  Although  it  would  greatly  reduce  the  ratio  of  profits  to 
wages  in  1880,  rather  than  risk  doubtful  results  I  prefer  to  exclude  the  whole  of 
Boston  data  for  1885.  *  This  includes  salaries. 


ACTUAL   RISE   OF    WAGES.  279 

It  will  be  seen  from  these  facts,  which  represent  the  greatest 
body  of  statistical  data  ever  collected  upon  the  subject,1  that  the 
industrial  tendency  during  the  last  thirty  years  has  been  steadily 
towards  a  greater  concentration  of  capital  and  economy  in  pro- 
ductive power,  resulting  in  an  actual  increase  in  wages  both  rela- 
tively to  the  product  and  per  laborer  employed,  and  also  a  relative 
proportional  decrease  of  profit  as  compared  with  wages. 

1  The  figures  for  the  United  States  are  taken  from  the  Census  of  1880  and 
those  for  Massachusetts  are  taken  from  the  industrial  census  of  that  State,  rep- 
resenting for  1880  14,352  establishments  in  80  industries  with  an  aggregate  capi- 
tal of  $271,056,051  ;  for  1885,  23,431  establishments  in  83  industries,  with  an 
aggregate  capital  of  $500,594,377. 


PART  IV. 

THE    PRINCIPLES  OF    PRACTICAL  STATESMAN- 
SHIP;  OR,  APPLIED  SOCIAL  ECONOMICS. 


CHAPTER  I. 

LAISSEZ  FAIRE  AS  A  GUIDING  PRINCIPLE   IN 
PUBLIC  POLICY. 

SECTION  I. — A  Protest  Against  Paternalism. 

ALTHOUGH  laissez  faire  has  never  been  the  accepted  rule  of 
public  policy  in  any  country,  the  fact  that  for  more  than  a 
century  it  has  been  taught  by  leading  economists  as  the  guiding 
principle  of  industrial  statesmanship  entitles  it  to  prominent  con- 
sideration. It  should  be  remembered  in  the  first  place  that  the 
idea  of  laissez  faire  as  applied  to  industrial  statesmanship  does 
not  represent  an  inductively  established  principle  in  society  ; 
that  is  to  say,  it  is  not  a  logical  conclusion  drawn  from  an  ex- 
tensive study  of  industrial  phenomena.  On  the  contrary  it  came 
into  existence  as  a  watchword  to  express  a  protest  against  the 
high-handed  paternalism  of  the  feudal  and  mercantile  systems ; 
and  by  the  force  of  habitual  repetition,  sustained  by  a  pardon- 
able bias  against  a  land-owning  class,  it  was  subsequently  elevated 
to  the  position  of  an  economic  principle. 

During  the  Middle  Ages  government  was  not  only  essentially 
paternal,  but  it  was  exclusively  in  the  hands  of  the  land-owning 
class.  The  interest  class  being  chiefly  local,  industrial  policy 
was  naturally  restrictive  in  character.  Accordingly,  in  the 
earliest  stages  of  manufacture  and  the  growth  of  the  free  towns, 
industry  was  hemmed  in  by  innumerable  arbitrary  regulations. 
Scarcely  any  occupation  could  be  engaged  in  without  paying 
tallage  or  tribute  to  the  baron.  And  with  the  growth  of  the  Free 
Cities  and  the  decline  of  baronial  power  this  privilege  of  exacting 
tribute  for  the  right  to  engage  in  an  industry  was  assumed  by  the 
guilds,  and  finally  took  the  form  of  charters,  by  which  the  gov- 

283 


284  ORIGIN  OF  LAISSEZ  FAIRE. 

ernment  became  the  exactor  of  booty.  In  proportion  as  manu- 
facture and  commerce  increased,  the  evil  effects  of  this  policy 
became  more  and  more  inimical  to  public  welfare,  and  made  a 
new  industrial  policy  necessary.  Nor  is  it  surprising  that  the 
new  policy  should  be  the  very  opposite  of  the  old  one.  The 
remedy  for  the  evil  effects  of  too  much  government  interference 
was  naturally  sought  in  a  policy  of  no  government  interference. 

By  the  last  half  of  the  seventeenth  century  this  anti-paternal 
feeling  had  become  very  strong,  and  was  finally  voiced  by  a 
prominent  French  merchant,  who,  when  asked  by  Colbert, 
"What  can  we  do  to  aid  you?"  promptly  answered,  " Laissez 
faire" — Let  us  alone.  This  expression  so  completely  represented 
the  feelings  of  the  mercantile  class  that  it  became  the  watchword 
for  a  new  policy,  and  by  the  middle  of  the  next  century  was  made 
the  basis  of  an  economic  theory  by  Quesnay  and  the  Physiocrats, 
whose  policy  was  concisely  expressed  as  "  Laissez  faire  et  laissez 
passer " — Let  us  alone  and  keep  the  ways  free.  In  the  last 
quarter  of  the  eighteenth  century  this  doctrine  was  revised  and 
recast  in  England  by  Adam  Smith.  In  many  important  respects 
the  great  Scotchman  improved  upon  the  doctrines  of  the  French 
Physiocrats,  especially  in  bringing  out  the  economic  importance 
of  manufacture  and  commerce.  But  in  view  of  the  fact  that  the 
public  policy  of  England  was  still  largely  determined  by  the 
landed  aristocracy,  who  were  traditionally  hostile  to  the  interests 
of  the  manufacturing  and  trading  classes,  Adam  Smith  naturally 
adhered  to  the  doctrine  of  no  government  interference.  Since  his 
time  the  idea  of  laissez  faire  has  beeh  generally  presented  as 
representing  a  fundamental  principle  upon  which  the  industrial 
policy  of  all  nations  should  be  based,  any  departure  from  this 
rule  being  justified  only  in  special  emergencies. 

In  the  next  place  it  should  be  observed  that  the  doctrine  of 
laissez  faire  has  not  been  verified  by  subsequent  experience ; 
consequently,  instead  of  being  more  implicitly  accepted,  its 
economic  validity  is  denied  just  in  proportion  as  the  scientific 
treatment  of  the  subject  increases.  As  an  axiom  in  public  policy 
laissez  faire  is  rejected  by  the  inductive  economists  of  the  present 
generation  with  almost  as  much  uniformity  as  it  was  accepted  by 
the  deductive  economists  of  the  previous  half  century.  There- 
fore, the  claim  that  the  theory  of  laissez  faire  represents  a 


CHARACTER   OF  LAISSEZ  FAIRE.  285 

universal  principle  in  nature  and  society,  and  is  entitled  to  the 
same  unquestioning  acceptance  in  economics  that  is  accorded 
to  the  principle  of  gravitation  in  physics,  is  wholly  unwarranted. 

SECTION  II. — Laissez  Faire  Essentially  Unscientific. 

Considered  as  a  fundamental  principle  in  statesmanship, 
laissez  faire  is  essentially  unscientific.  It  is  necessarily  negative, 
while  statesmanship  is  positive.  All  government,  order,  and 
progress  imply  affirmative  action,  and  therefore  are  the  op- 
posite of  laissez  faire.  Science  is  essentially  aggressive ;  it 
implies  the  active  policy  of  investigating,  knowing,  and  control- 
ling things.  Every  improvement  in  the  arts  and  sciences,  every 
labor-saving  appliance,  is  the  result  of  man's  interference  with 
nature,  of  subjecting  natural  forces  to  human  purposes.  By 
studying  the  laws  of  chemistry,  electricity,  and  mechanics,  we 
know  that  under  certain  conditions  heat,  light,  and  force  are 
developed.  And  instead  of  adopting  the  rule  of  laissez  faire  y  and 
waiting  till  nature  produces  the  desired  result,  we  have  learned 
to  bring  the  particular  forces  together  in  just  such  relations  as 
will  produce  that  result  much  quicker.  Consequently,  we  make 
steam  produce  our  wealth,  electricity  do  our  errands,  and  natural 
forces  serve  us  in  every  phase  of  life. 

The  same  is  true  in  the  animal  and  vegetable  world.  Our 
choicest  flowers  and  vegetables  are  not  the  result  of  unaided 
natural  selection,  but  of  artificial  cultivation  ;  that  is  to  say,  of 
the  scientific  application  of  the  law  of  development.  We  have 
studied  the  conditions  under  which  certain  kinds  of  fruit,  flowers, 
and  vegetables  develop  their  best  specimens,  and  where  nature 
fails  to  supply  these  conditions  they  are  substituted  by  man.  Our 
fast  horses  and  finest  breeds  of  cattle  and  sheep  have  all  been 
produced  in  the  same  way.  What  is  true  in  chemistry,  mechanics, 
botany,  and  biology  is  equally  true  in  sociology. 

Since  affirmative  statesmanship  is  necessary  to  government, 
and  government  is  necessary  to  civilization,  it  is  a  contradiction 
in  terms  to  speak  of  laissez  faire  as  the  basis  of  statesmanship. 
The  science  of  government  is  not  the  knowledge  of  what  not  to 
do,  but  it  is  the  knowledge  of  what  to  do  and  how  and  when  to 
do  it.  To  know  what  to  do  implies  the  knowledge  of  what  not  to 
do,  but  to  know  what  not  to  do  does  not  imply  the  knowledge  of 


286  ERRONEOUS  POSTULATES. 

^vhat  to  do.  So  long  as  government  exists  it  must  have  a  function 
— a  sphere  of  action.  Scientific  statesmanship  implies  a  knowl- 
edge of  the  principle  by  which  that  action  should  be  directed. 
Because  the  history  of  state  interference  with  industry  is  the 
history  of  mistakes,  it  is  commonly  assumed  that  the  only  way  to 
avoid  mistakes  of  the  past  is  to  do  nothing  in  the  present  It 
would  be  just  as  correct  to  say  that  because  all  mistakes  are  the 
result  of  affirmative  action,  inaction  is  the  only  means  of  avoiding 
error,  the  logic  of  which  would  involve  the  destruction  of  the 
human  race.  We  cannot  choose  between  doing  and  not  doing, 
but  only  between  doing  wisely  and  unwisely.  The  doctrine  of 
laissez  faire,  therefore,  has  no  place  in  the  science  of  statesman- 
ship or  the  art  of  government. 

This  theory  derives  its  chief  plausibility  from  a  seeming  uni- 
versality in  its  postulates,  which  are  :  (i)  That  self-interest  is  a 
universal  principle  in  human  nature.  (2)  That  each  individual 
knows  his  own  interest  best,  and  in  the  absence  of  arbitrary  re- 
strictions is  sure  to  follow  it.  (3)  That  free  competition  always 
develops  the  highest  possibilities  by  enabling  each  to  do  that  for 
which  he  is  best  fitted,  and  thereby  most  surely  advances  the 
welfare  of  all. 

The  proposition  that  self-interest  is  a  universal  principle  in 
human  nature  is  undoubtedly  correct  ;  but  there  is  nothing  in 
experience  or  logic  to  warrant  the  assumption  that  the  other 
two  follow  from  it.  That  whatever  is  for  the  best  interest  of 
each  promotes  the  welfare  of  all  is  indisputable,  but  that  each 
individual  always  knows  what  is  best  for  his  own  interest,  and  in 
the  absence  of  arbitrary  restrictions  is  sure  to  follow  it,  is  by  no 
means  certain. 

Before  each  can  know  how  to  promote  his  own  best  interest  he 
must  know  what  his  best  interest  is,  which  is  precisely  what  the 
great  bulk  of  the  human  race  do  not  know.  This  knowledge  can 
only  be  acquired  by  a  more  or  less  intelligent  generalization  from 
experience.  Whatever  tends  to  improve  man's  condition  materially, 
socially,  and  morally,  and  increase  the  advantages  of  social  life, 
promotes  his  best  interests.  To  assume  that  every  one  knows 
what  is  best  for  himself  is  as  unphilosophic  as  to  assume  that  the 
child  knows  best  what  will  promote  its  own  welfare.  Although 
many  parents  are  ignorant,  and  often  injure  when  they  think  to 


IGNORANCE   OF  SELF  INTEREST.  287 

help  the  child,  the  fact  remains  that  the  successful  rearing 
of  children  chiefly  depends  upon  the  number  of  instances  in 
which  the  wisdom  of  the  parent,  developed  by  experience,  pre- 
vails over  the  ignorance  of  the  child.  Indeed  the  race  would  die 
out  if  the  experience  of  parents  werenot  transformed  into  author- 
ity over  the  child. 

What  is  true  of  the  child  in  this  respect  is  still  true  to  a  very 
great  extent,  of  a  vast  majority  of  the  human  race.  Take  for 
instance  the  people  of  Central  Africa.  The  principle  of  self-in- 
terest is  as  universal  there  as  in  any  part  of  the  world.  But  no 
one  would  seriously  claim  that  the  average  individual  in  that  dark 
continent  knows  what  is  best  for  his  own  interest.  On  the  con- 
trary, the  most  advanced  scientists,  philanthropists,  philosophers, 
and  statesmen  agree  that  the  best  interests  of  the  inhabitants  of 
Africa  can  only  be  promoted  by  the  interference  of  more  ad- 
vanced and  civilized  nations.  This  same  lack  of  knowledge  of 
what  is  best  for  one's  own  interest,  which  is  simply  ignorance  of  the 
laws  of  social  development,  is  still  painfully  apparent,  not  merely 
in  every  country,  but,  more  or  less  in  every  class  in  the  most  ad- 
vanced countries.  Those  familiar  with  the  laws  of  sanitation 
and  hygiene  know  that  cleanliness,  fresh  air,  good  drainage,  and 
wholesome  food  are  of  vital  importance  to  physical  health,  and 
therefore  are  of  the  highest  interest  to  the  laborer.  But  the  ex- 
perience of  health  authorities  shows  that  only  with  the  utmost  diffi- 
culty can  the  laboring  classes,  and  particularly  the  poorer  and 
more  ignorant  portion,  be  induced  to  pay  any  attention  to  these 
conditions. 

So  too  the  employing  classes,  while  more  enlightened  upon 
questions  of  science,  literature,  and  art,  exhibit  scarcely  less 
ignorance  in  regard  to  their  economic  interests.  Take,  for  in- 
stance, their  attitude  towards  the  social  condition  of  the  laborer. 
They  have  assumed  and  have  acted  almost  uniformly  upon  the 
assumption  that  high  wages  are  inimical  to  their  own  interests, 
and  consequently  that  to  resist  the  rise  of  wages  and  social  im- 
provement of  the  laboring  classes  is  to  promote  their  own  pros- 
perity ;  whereas,  had  they  known  their  true  economic  relation  to 
the  laborer,  they  would  have  seen  that  every  limitation  of  his 
social  and  material  progress  reacts  injuriously  upon  the  per- 
manence and  extent  of  their  own  prosperity.  The  reason  for 


288  FALSE  NOTIONS  OF  COMPETITION. 

their  mistaken  attitude  is  precisely  the  same  as  that  which  gov- 
erns the  laborer  when  he  endeavors  to  improve  his  condition  by 
using  dynamite,  and  when  he  resists  the  introduction  of  improved 
machinery,  or  evades  the  instructions  of  the  Board  of  Health, 
— namely,  ignorance  of  what  is  for  his  own  best  interest.  It  is 
therefore  fallacious  to  assume  that  every  individual  knows  his 
own  interest  best,  and  in  the  absence  of  arbitrary  restrictions  is 
sure  to  follow  it. 

The  idea  that  free  competition  always  develops  the  highest 
possibilities  by  enabling  each  to  do  that  for  which  he  is  best 
fitted,  is  equally  misleading.  The  popular  idea  of  free  compe- 
tition is  that  it  means  an  unconditional  struggle  for  existence 
among  individual  units,  and  that  is  the  sense  in  which  the  term 
is  usually  employed  by  economists.  This  view  is  commonly  re- 
garded as  the  application  of  the  doctrine  of  natural  selection  to 
society  ;  and  hence  the  policy  of  laissez  fairs  is  claimed  to  be 
based  upon  the  doctrine  of  evolution.  This  is  a  mistaken  con- 
ception both  of  the  doctrine  of  evolution  and  of  the  nature  and 
function  of  competition,  as  will  appear  from  the  following  con- 
siderations. 

The  doctrine  -of  evolution  is  simply  a  theory  of  growth  as 
distinguished  from  that  of  special  providence.  It  teaches  that 
whatever  may  have  been  the  origin  of  things,  progress  towards 
higher  forms  of  existence  in  all  classes  of  phenomena  takes  place 
in  accordance  with  a  law  of  cause  and  effect,  and  that  higher  and 
more  complex  types  of  formation  and  the  existence  of  new  func- 
tions, appear  only  under  conditions  favorable  to  their  develop- 
ment. In  other  words,  opportunity  for  actualizing  the  potential 
qualities  of  higher  types  is  indispensable  to  progress.  There  is 
nothing  in  this  doctrine  to  warrant  the  assumption  that  such  op- 
portunity can  always,  or  even  generally  be  best  secured  by  the 
new  type  for  itself,  through  a  mere  unrestrained  struggle  for  ex- 
istence. On  the  contrary,  the  whole  implication  is  that  existing 
types  must  prepare  the  way  and  therefore  create  a  favorable 
opportunity  for  the  birth  and  growth  of  the  higher  type.  Much 
of  the  error  in  this  connection  is  due  to  a  mistaken  use  of  the 
phrases  "  nature  "  and  "  natural  law."  We  commonly  employ  the 
term  nature  as  if  it  represented  only  unconscious  cosmic  forces 
as  distinguished  from  conscious  human  forces.  And  thus  we 


USE   OF   THE    TERM  NATURAL   LAW.  289 

speak  of  the  products  of  cosmic  forces  as  natural  and  the  prod- 
ucts of  human  device  as  artificial,  just  as  if  human  arrangements 
were  necessarily  unnatural. 

The  term  "  natural  "  applies  no  more  to  cosmic  than  to  human 
forces.  The  consciousness  and  intelligence  of  man  are  as  natural 
as  the  unconsciousness  of  gravitation  or  of  inorganic  substances. 
The  term  "  natural "  simply  means  that  which  is  necessary  to  or 
inherent  in  the  constitution  of  things.  It  is  natural  that  man 
should  have  blood,  nerves,  and  brain,  because  without  these  he 
would  not  be  man,  but  it  is  equally  natural  that  stones  should  not 
have  them,  because  in  that  case  they  would  not  be  stones.  So 
with  natural  law  ;  a  law  is  not  natural  or  unnatural  because  it 
relates  to  conscious  or  unconscious  objects,  but  solely  because 
it  relates  to  the  nature  and  inherent  constitution  of  things.  It 
is  just  as  much  in  accordance  with  natural  law  that  under  certain 
conditions  electricity  destroys  our  house,  as  it  is  that  under 
other  conditions  it  should  light  our  streets.  Natural  law  is  simply 
the  order  in  which  phenomena  necessarily  occur  under  given 
conditions.  Man  cannot  impose  artificial  laws  ;  he  can  only 
artificially  change  the  relations  of  objects  so  that  through  the 
operation  of  cause  and  effect  desired  phenomena  may  occur 
sooner,  more  frequently  and  more  continuously  than  they  other- 
wise would.  It  is  in  this  way,  and  in  this  way  only,  that  man  is 
ever  able  to  aid  progress. 

Therefore,  in  considering  whether  laissez  faire  or  human  inter- 
vention is  to  be  preferred,  the  question  is  not  whether  one  is 
more  natural  than  the  other,  because  in  any  case  the  result 
will  be  natural,  but  it  is  whether  the  desired  end  can  be  more 
surely  obtained  by  intervention  than  by  the  unaided  operation  of 
unconscious  forces.  And  this  will  depend  entirely  upon  whether 
those  who  manipulate  the  conditions  understand  the  laws  of  the 
phenomena  with  which  they  are  endeavoring  to  deal,  and  there- 
fore can  correctly  predicate  the  result.  Ignorant  or  unscientific 
interference  may  be  worse  than  laissez  faire.  But  this  by  no 
means  implies  that  laissez  faire  is  superior  to  scientific  regulation. 

Another  expression  which  is  misleadingly  employed  is  "  natural 

selection."    Here  again  the  term  natural  is  used  as  if  all  selection 

were  unnatural  that  is  not  blind  and  unconscious.     There  are  no 

natural  and  unnatural   selections  ;  there    are   wise   and    unwise 

19 


2QO  NATURAL   AND  HUMAN   SELECTION. 

selections,  and  there  are  conscious  and  unconscious  selections. 
It  is  as  natural  that  ignorance  will  make  poor  selections  as  that 
intelligence  will  make  good  ones.  Because  progress  in  the  physi- 
cal world  has  taken  place  mainly  by  unconscious  selection,  it  is 
assumed  that  progress  in  society  will  necessarily  be  more  rapid 
and  continuous  under  a  regime  of  laissez  faire, 

If  it  were  true  that  in  physical  phenomena  an  unconditioned 
struggle  of  units  always  produces  the  highest  types  and  the 
greatest  progress,  it  would  not  follow  that  the  same  should  be  true 
in  society.  But  it  is  by  no  means  clear  that  this  is  true  even  in 
the  physical  world.  It  is  of  course  true  that  in  the  development 
of  the  earth  and  other  physical  formations  where  surviving 
forms  were  determined  by  the  action  and  reaction  of  unconscious 
physical  forces,  those  forms  only  were  able  to  survive  which 
could  withstand  the  struggle.  But  it  is  scarcely  less  certain  that 
many  higher  forms  may  have  been  destroyed  during  early  stages 
of  their  development,  which,  had  they  been  able  to  reach  maturity, 
would  have  been  better  able  to  withstand  opposing  forces  than 
those  which  did  survive. 

It  is  highly  probable  that  by  this  means  millions  of  potentially 
higher  forms  were  destroyed  in  their  infancy  by  mature  and  lower 
types  of  formation.  Thus  under  a  regime  of  pure  laissez  faire — 
the  action  and  reaction  of  blind  physical  forces — progress  may 
have  been  greatly  retarded,  while  inferior  types  for  ages  perpetu- 
ated their  existence  by  preventing  the  development  of  superior 
types.  Indeed,  this  is  what  we  see  taking  place  in  every  domain 
where  laissez  faire  prevails,  and  development  is  left  to  an  un- 
conditioned struggle  for  existence  among  individual  units. 

In  the  sphere  of  vegetation  for  instance,  it  is  now  a  matter  of 
scientific  knowledge  that  the  choicest  trees  and  most  highly  de- 
veloped plants  of  any  species  may  be  stunted  and  even  destroyed 
by  the  presence  of  weeds  and  brush  that  had  prior  existence.  This 
is  a  fact  that  every  scientific  farmer  and  horticulturist  under- 
stands. As  an  illustration  of  the  law  of  natural  selection  and  the 
survival  of  the  fittest,  we  are  pointed  to  wild  animals,  say  a  drove 
of  wild  horses.  It  is  assumed  that  those  which  survive  are 
always  best  and  that  those  which  were  killed  off  were  inferior, 
from  the  mere  fact  that  the  former  lived  and  the  latter  died. 
This  conclusion,  however,  does  not  necessarily  follow  from  these 


SURVIVAL    OF   THE    UNFIT.  29! 

facts.  Suppose,  for  example,  a  foal,  which  possessed  all  the  pos- 
sibilities of  being  a  faster  or  tougher  horse  than  any  in  the  herd, 
was  kicked  in  the  ribs  by  one  of  the  inferior  though  mature 
horses  and  fatally  injured.  It  is  quite  clear  that  in  that  case  the 
inferior  type  would  prevent  the  development  of  the  superior. 
And  this  is  what  is  constantly  taking  place  wherever  an  unre- 
strained struggle  for  existence  prevails,  as  all  experienced  horse- 
breeders  know.  By  the  study  of  appropriate  mating  and  the 
protection  of  the  superior  young  against  the  violence  of  the 
inferior  old,  speed,  strength,  and  other  desired  qualities  of  the 
horse  have  been  developed  to  a  degree  never  before  known. 
Thus  under  scientific  selection,  the  higher  possibilities  of  the 
horse  have  been  developed  incomparably  faster  than  they  ever 
were  under  natural  selection.  This  is  true  in  every  sphere  of 
phenomena  to  which  human  knowledge  can  be  applied.  In  fact, 
progress  everywhere  increases  directly,  as  scientific  selection  can 
supersede  natural  selection — in  proportion  as  knowledge  of  rela- 
tions can  be  substituted  for  blind  experimentation.  Were  this 
otherwise,  science  and  civilization  would  be  no  better  than  igno- 
rance and  barbarism.  Clearly  therefore  laissez  faire  is  not  the 
surest  way  to  promote  the  survival  -of  the  fittest  even  in  the 
physical  world. 

In  society  this  is  still  more  uniformly  true  by  virtue  of  a  differ- 
ent character  in  the  phenomena.  One  of  the  most  marked  dis- 
tinctions between  physical  and  social  phenomena  is  the  manner 
in  which  existing  units  influence  the  environment  of  future  units. 
In  the  lower  forms  of  life  the  opposition  of  the  inferior  mature  to 
the  superior  immature  (the  established  old  to  the  unestablished 
new)  is  limited  to  a  direct  struggle  between  contending  units. 
Consequently,  the  potentially  superior  has  always  a  limited  chance 
(say  one  in  a  million)  of  surviving,  if  only  by  evading  the  deadly 
opposition  of  an  established  type.  In  society  this  is  different,  and 
the  chance  of  the  new  to  escape  the  repressive  power  of  the  old 
is  more  difficult.  Man,  having  acquired  the  power  of  consciously 
adapting  means  to  an  end,  can  not  only  resist  the  undeveloped 
new  with  the  advantage  of  prior  possession  and  mature  develop- 
ment, but  he  also  has  the  power  of  manipulating  the  environment 
of  the  subsequent  generation  so  as  to  make  the  development  of 
the  superior  impossible. 


GOVERNMENT  INEVITABLE. 

One  of  the  prime  conditions  of  human  society  is  consciously 
regulated  order,  and  this  implies  government.  Government  neces- 
sarily dominates  the  social  environment  of  the  individual. 
Through  social  and  political  institutions,  therefore,  the  opportu- 
nities for  enabling  the  fittest  to  survive  will  necessarily  be  aided 
or  repressed  according  to  the  notions  entertained  by  those  who 
determine  the  policy  of  government.  By  this  means,  through 
mere  accident  of  priority,  the  inferior  man  can  so  regulate  the 
conditions  of  existence  for  subsequent  generations  that  the  de- 
velopment of  the  potentially  superior  shall  be  impossible,  and 
thus  secure  the  survival  of  the  unfittest  instead  of  the  fittest. 

The  history  of  society  is  replete  with  evidences  of  this  fact. 
Indeed  every  arrest  of  social  progress  is  due  to  the  fact  that  the 
inferior  who  obtained  possession  of  authority  have  so  dominated 
the  environment  as  to  cut  off  opportunity  for  the  development  of 
others,  who  with  favorable  opportunities  would  have  been  supe- 
rior to  themselves.  Under  such  conditions  not  only  does  the 
unfit  survive,  but  its  influence  tends  to  perpetuate  the  reign  of  the 
less  fit  in  two  ways.  i.  By  stifling  the  germs  of  superiority  in 
humble  classes,  and  thus  cutting  off  the  possibility  of  its  develop- 
ment and  actualization.  2:  By  stereotyping  the  character  of  the 
successful  in  giving  it  a  monopoly  of  power  and  position.  'This 
is  what  took  place  in  ancient  Egypt,  Greece,  and  Rome,  and  in 
mediaeval  Europe,  where  both  religious  and  civil  authority  was 
exercised  to  cut  off  all  opportunity  for  the  development  of  char- 
acter in  those  classes  of  the  community  not  recognized  as  noble 
or  royal.  The  masses,  who  have  ever  constituted  the  laboring 
classes,  have  been  regarded  as  an  inferior  portion  of  society. 
Their  social  inferiority  has  not  only  been  made  a  reason  for 
their  exclusion  from  social  power  and  authority,  but  by  destroy- 
ing the  opportunity  for  actualizing  their  best  possibilities  it  has 
been  made  the  means  of  preventing  their  development  and  thus 
keeping  them  inferior.  Laissez  faire,  therefore,  is  literally  im- 
possible in  society.  There  can  be  no  choice  between  natural 
selection  and  human  selection,  but  only  a  choice  between  scien- 
tific human  selection  and  ignorant  human  selection  ;  not  between 
government  and  no  government,  but  only  between  wise  or  un- 
wise government  interference. 

The  chief  fallacy  underlying  the  doctrine  of  laissez  faire  is  a 


ECONOMIC  COMPETITION.  293 

mistaken  notion  regarding  the  nature  of  competition.  Because 
competition  is  rivalry  between  contending  units  it  is  assumed 
that  all  rivalry  is  competition,  and  hence  that  free  competition 
is  simply  an  unrestrained  struggle  for  existence.  As  we  have 
already  seen,  unrestrained  struggle  may  and  often  does  mean 
repression  and  despotism  instead  of  development  and  freedom. 
It  is  entirely  true  that  competition  is  indispensable  to  develop- 
ment, but  in  order  to  have  competition  that  develops  instead  of  a 
struggle  that  destroys,  rivalry  must  take  place  under  conditions 
which  make  the  object  sought  reasonably  possible  to  either  con- 
testant. There  can  be  no  advantageous  competition  where  the 
prize  is  impossible  to  one  and  certain  to  the  other.  Such  an 
unequal  struggle  instead  of  developing  the  highest  possibilities 
of  both  competitors,  inspires  neither  contestant  to  do  his  best. 
To  have  effective  competition  the  contest  must  be  of  such  a 
character  as  to  compel  the  winner  and  inspire  the  loser  to  the 
maximum  degree  of  effort.  This  can  only  occur  when  the  contest 
takes  place  between  approximately  equal  competing  units.  Com- 
petition between  unequals  necessarily  tends  to  crush  rather  than 
develop  the  weaker,  although  he  possesses  all  the  potential  possi- 
bilities of  superiority. 

Take,  for  instance  the  child  of  the  poor  laborer  and  that  of  the 
wealthy  merchant.  The  former  is  sent  to  the  factory  or  mine 
without  any  education  or  opportunity  for  social  development ;  it 
is  reared  in  an  atmosphere  of  ignorance,  brutality  and  vice,  while 
the  latter  receives  all  the  education  and  incentives  for  culture 
that  wealth  and  leisure  can  supply.  When  these  two  children 
grow  up,  can  there  be  any  inspiring  competition  between  them  as 
citizens  for  social  position,  public  confidence,  or  even  in  the 
sphere  of  business,  where  education  and  mental  training  are 
necessary,  indeed  anywhere  outside  the  sphere  of  manual  labor  ? 
The  difference  between  them  in  this  respect,  which  nothing  but 
a  difference  in  their  opportunities  creates,  instead  of  inspiring 
both  to  do  their  best,  will  naturally  create  a  feeling  of  shrinking 
inferiority  in  the  one  and  an  undue  feeling  of  superiority  in  the 
other.  These  two  opposite  feelings  necessarily  tend  to  give  the 
power  of  authority  to  the  latter  and  the  submissive  position  to 
the  former. 

Clearly  therefore  instead  of  laissez  faire  necessarily  securing 


294  NECESSITY  OF  OPPORTUNITY. 

free  competition  and  "  the  survival  of  the  most  fit,"  it  is  the 
policy  which  in  society  is  most  likely  to  prevent  free  competition 
and  to  promote  the  survival  of  the  less  fit.  It  is  an  indispensable 
condition  to  free  competition  and  the  maximum  development  of 
the  competitors,  that  the  contest  should  be  between  approxi- 
mately equal  competing  units.  To  secure  approximate  equality 
among  competitors  and  hence  the  success  of  the  superior,  we 
must  secure  to  each  the  opportunity  for  developing  his  best 
possibilities.  In  other  words,  to  obtain  the  inspiring  influence  of 
free  competition  and  to  develop  instead  of  crushing  the  potential 
capacity  of  the  individual  we  must  substitute  scientific  states- 
manship for  ignorant  authority.  The  question  of  statesmanship 
then  is  not  whether  or  not  the  state  shall  interfere  in  the  affairs 
of  society, — this  it  is  sure  to  do  so  long  as  society  exists, — but 
upon  what  principle  it  shall  act  in  order  to  promote  maximum 
prosperity  and  freedom  in  the  community.  This  involves  a  con- 
sideration of  the  economic  and  social  functions  of  government, 
which  will  be  the  subject  of  the  next  chapter. 


CHAPTER  II. 

THE  STATE  ;  OR,  THE  NATURE  AND  FUNCTION  OF 
GOVERNMENT. 

SECTION  I. —  What  is  the  State? 

IT  is  very  common  to  use  the  term  state  as  if  it  were  synony- 
mous with  society.  That  such  a  use  of  the  term  is  too  indefinite 
for  scientific  purposes  becomes  apparent  the  moment  we  attempt 
to  consider  the  functions  of  the  state.  It  is  essential  to  the  idea 
of  society  that  there  be  more  or  less  social  intercourse- and  inter- 
dependence among  the  individual  units  having  some  recognized 
common  centre  of  interest  and  action.  This  is  not  true  of  all 
mankind.  The  human  race  is  divided  into  groups  or  nations 
composed  of  individuals  who  have  more  or  less  social  and  indus- 
trial affinity.  There  is  a  great  diversity  of  feeling,  interest,  and 
action  within  these  groups,  but  each  group  has  a  common  inter- 
est and  will  take  common  action  as  distinguished  from  any  other 
group  or  nation.  The  maintenance  of  this  common  interest  we 
call  patriotism.  Society  therefore  may  be  defined  as  an  aggre- 
gate of  individuals  in  any  group,  nation,  or  tribe.  We  cannot 
speak  of  the  functions  of  this  aggregate,  because  in  its  entirety 
society  never  acts.  Even  under  pure  communism,  where  the 
greatest  uniformity  of  the  units  prevails,  children,  minors,  and 
usually  though  not  necessarily,  women  are  excluded  from  active 
participation.  Thus  society  as  an  aggregate  never  acts  except 
through  a  more  or  less  extended  representation  by  which  a 
portion  acts  for  the  whole.  This  representative  portion,  large  or 
small,  constitutes  the  state  as  distinguished  from  society  ;  it  is  the 
largest  acting  aggregate,  and  the  individual  is  the  smallest  acting 
unit. 

295 


296  NO  ABSOLUTE  RIGHTS. 

The  state  then  may  be  defined  as  the  conscious  authoritative 
expression  of  society.  Since  the  aggregate  is  greater  than,  and 
includes  the  individual,  the  authority  of  the  state  necessarily  in- 
cludes and  is  superior  to  that  of  the  individual.  The  state  then 
not  only  represents  the  authoritative  action  of  the  aggregate 
(society)  as  distinguished  from  that  of  the  individual,  but  its 
authority  is  necessarily  absolute  over  both  the  individual  unit 
and  social  aggregate. 

We  often  hear  such  expressions  as  "  absolute  rights,"  "  inalien- 
able rights,"  etc.  Strictly  speaking,  there  are  no  such  rights  in 
society  ;  not  only  the  right  to  "  liberty  and  the  pursuit  of  happi- 
ness," but  even  the  right  to  life  in  society  is  necessarily  subject 
to  the  will  of  the  aggregate,  as  authoritatively  expressed  in  the 
state  or  government.  This  is  indispensable  to  the  existence  of 
society.  Society  being  an  association  of  individuals  whose  im- 
mediate interests  are  not  always  identical  and  whose  conceptions 
of  the  equity  of  their  relations  are  frequently  very  different,  the 
existence  of  a  power  superior  to  both,  whose  authority  shall  be 
absolute,  is  indispensable  to  social  order.  All  rights  of  the  indi- 
vidual in  society  therefore,  must  in  the  very  nature  of  the  case, 
be  conditional.  Absolute  individual  rights  are  a  social  impossi- 
bility. 

It  is  equally  indispensable  that  these  conditions  should  be  de- 
termined and  enforced  by  the  collective  authority,  the  state, 
since  nothing  short  of  that  would  command  the  confidence,  sup- 
port, and  obedience  of  the  individual  units.  While  the  authority 
of  the  state  is  always  absolute  over  both  individual  units 
and  the  social  aggregate,  it  always  represents  a  consensus  of 
both.  Although  the  state  is  always  representative,  it  does  not 
always  represent  in  the  same  manner,  nor  derive  its  authority  in 
the  same  way.  In  some  stages  of  society  collective  authority 
is  all  invested  in  one  person,  as  in  the  chief  of  primitive  tribes, 
and  forms  an  absolute  despotism.  This  is  sometimes  due  to 
superior  physical  force,  and  sometimes  to  a  fiction  of  divine  ap- 
pointment. In  other  stages  of  society  authority  is  invested  in 
a  number  of  individuals  by  hereditary  descent,  forming  an  aris- 
tocracy or  constitutional  monarchy,  and  in  others  it  is  vested 
in  a  still  larger  number,  chosen  by  popular  vote,  forming  a 
democratic  republic.  But  in  every  case  the  state  represents  the 


ALL    GOVERNMENT  REPRESENTATIVE.  297 

authority  of  the  aggregate.  The  Czar's  proclamation  is  not  the 
act  of  a  mere  individual,  but  the  recognized  authoritative  expres- 
sion of  Russia.  The  Pope's  edict  is  not  the  voice  of  an  individual 
Italian,  but  that  of  the  Church. 

It  may  be  said  that  one-man-power,  as  represented  by  a  shah, 
a  sultan,  a  czar,  or  a  pope,  is  not  representative  but  despotic. 
It  is  indeed  despotic,  but  it  is  also  representative.  Representa- 
tion is  to  speak  and  act  for  others  authoritatively.  In  this  sense, 
despotism  is  no  less  representative  than  is  democracy,  but  its  au- 
thority to  act  for  others  is  acquired  in  a  different  way.  The 
essence  of  all  collective  or  state  authority  is  that  the  government 
derives  its  "powers  from  the  consent  of  the  governed."  The  ab- 
solute authority  of  the  despots  who  rule  Persia,  Russia,  and 
Turkey  rests  upon  the  consent  of  the  governed  as  completely  as 
does  that  of  the  President  or  Congress  in  democratic  America.  If 
the  Czar  of  Russia  had  not  the  consent  and  confidence  of  the 
Russians,  his  proclamations  would  have  no  more  authority  in 
Russia  than  would  those  of  any  other  individual.  It  is  because 
they  recognize  his  fitness  to  rule  (to  act  for  them)  that  they  obey 
and  support  him.  Their  confidence  may  be  misplaced,  or  may  be 
due  to  a  superstitious  belief  in  his  divine  appointment  as  the 
head  of  the  church  and  ruler  of  the  nation  ;  but  whatever  the 
reasons,  their  confidence  and  consent  are  none  the  less  complete, 
as  is  shown  by  the  fact  that  they  will  not  only  work  for  him  and 
worship  him,  but  will  by  the  millions  fight  and  die  for  him.  The 
only  difference  between  despotic  and  democratic  representation 
is  that  through  poverty,  ignorance,  and  superstition,  the  consent 
of  the  governed  under  despotism  is  given  by  silent  acceptance  of 
their  rulers  as  inherently  fitted  and  divinely  appointed  to  govern, 
while  under  democracy  this  consent  can  only  be  obtained  through 
the  volitional  action  of  the  individuals.  Thus  the  essential  dis- 
tinction between  despotism  and  democracy  is  not  that  the  latter 
is  more  representative  than  the  former,  but  that  it  is  more 
elective.  Poverty,  ignorance,  and  superstition  make  political  and 
social  incapacity  inevitable,  which  in  turn  make  elective  represen- 
tation impossible. 

Just  in  proportion  as  the  individual  units  of  a  community  be- 
come more  intelligent  and  positive  in  character,  does  their  con- 
sent to  the  authority  of  the  state  become  less  dependent  upon 


298  ELECTIVE  REPRESENTATION. 

traditional  usage  and  supernatural  injunction,  and  more  de- 
pendent upon  individual  judgment.  Hence  it  changes  from 
silent  acquiescence  to  conscious  choice,  and  then  the  repre- 
sentative function  of  the  state  becomes  less  hereditary  and  more 
elective  in  character.  In  such  countries  as  Persia,  Turkey,  and 
Russia  the  consent  of  the  governed  to  the  authority  of  gov- 
ernment consists  entirely  in  silent  acquiescence,  while  in  such 
countries  as  Austria,  Italy,  and  Germany,  where  material  condi- 
tions and  the  intelligence  of  the  people  are  more  advanced,  there 
is  a  limited  amount  of  elective  representation.  In  England  the 
elective  principle  is  still  more  general,  and  in  America  it  is  most 
general  of  all,  being  directly  or  indirectly  applied  to  every  branch 
of  government.  But  there  is  no  country  in  which  the  repre- 
sentation is  all  elective.  Even  in  democratic  America  women  are 
still  excluded  from  elective  representation.  The  state,  or  col- 
lective governing  authority,  sustains  exactly  the  same  representa- 
tive relation  to  women  in  the  United  States  as  does  that  of  the 
Czar  of  Russia  or  the  Shah  of  Persia  to  the  whole  people  of  those 
countries.  Hence  the  state,  whether  despotic  or  democratic,  is 
always  the  authoritative  expression  of  the  aggregate. 

This  is  only  another  form  of  stating  the  principle  so  frequently 
emphasized  in  these  pages — namely,  that  all  social  institutions 
rest  upon  the  habits  and  social  character  of  the  people.  Society, 
therefore,  differs  from  the  individual,  in  that  it  represents  a 
literal  aggregate  of  which  individuals  are  the  units.  The 
state  differs  from  society  and  from  the  individual,  in  that  it  is 
the  representative  collective  action  of  both,  and  its  authority  is 
absolute  over  both.  In  short,  the  state  expresses  authoritative 
social  policy. 

SECTION  II. —  The  Relation  of  the  State  to  the  Individual  in 
Progressive  Society. 

In  order  to  ascertain  the  true  relation  of  the  state  to  the  indi- 
vidual, it  is  necessary,  first  of  all,  to  examine  the  structural  con- 
stitution of  society.  This  brings  us  directly  to  the  question,  is 
society  a  higher  organism,  for  whose  preservation  and  develop- 
ment the  individual  units  are  the  tributary  means,  or  is  it  an  asso- 
ciation created  by  and  utilized  for  the  preservation  and  develop- 
ment of  the  individual  units  composing  it  ?  Upon  the  answer  to 


GREEK  IDEA    OF  SOCIETY.  299 

this  question  depends  the  character  of  statesmanship  and  the 
governing  principle  by  which  public  policy  should  be  shaped  and 
directed.  If  society  is  an  organic  entity,  to  whose  development 
the  individual  is  subordinate  and  simply  tributary,  then  the  true 
public  policy  would  be  to  increase  the  functions  of  the  state  and 
limit  the  sphere  of  individual  action  and  authority.  And  con- 
versely, if  the  development  of  the  individual  is  the  end  to  pro- 
mote which  society  is  only  a  means,  the  true  public  policy 
would  be  to  so  mould  and  direct  public  institutions  as  to  increase 
the  functions,  responsibility,  and  authoritative  sphere  of  the  indi- 
vidual, and  to  diminish  those  of  the  state.  It  will  be  observed 
that  these  two  conceptions  of  the  relation  of  the  state  to  the  indi- 
vidual logically  lead  to  opposite  theories  of  statesmanship,  the 
one  towards  socialism  and  the  other  towards  individualism. 

It  is  a  peculiar  feature  of  sociological  literature  that  both 
socialist  and  individualist  writers  assume  that  society  is  an  organic 
entity,  and  that  it  sustains  the  same  relation  to  individuals 
that  the  individual  organism  does  to  the  parts  of  which  it  is  com- 
posed. This  was  the  controlling  idea  of  the  Greeks  and  Romans, 
who  regarded  the  state  as  every  thing  and  the  individual  as  noth- 
ing, except  as  he  served  the  state.  In  his  ideal  republic,  Plato 
makes  the  state  stand  for  a  great  personality,  in  whom  the  differ- 
ent social  classes  are  simply  the  functions.  The  ruling  class,  the 
military  class,  and  the  industrial  class  are  presented  as  corre- 
sponding to  the  faculties  of  reason,  will,  and  passion  or  force  in 
the  human  organism.  Upon  this  point  at  least,  it  may  be  truly 
said  that  all  that  has  been  written  during  the  last  two  thousand 
years  has  been  simply  Platonizing.  Hobbes  endeavored  to  es- 
tablish literally  by  minute  detail  what  Plato  only  introduced  in 
general  outline,  by  making  society  a  colossal  artificial  man.  He 
not  only  made  certain  classes  of  the  community  correspond  to 
the  reason,  will,  and  passion  of  the  human  organism,  but  he  went 
so  far  as  to  divide  society  into  limbs,  joints,  nerves,  memory,  con- 
science, and  even  ascribed  to  it  a  soul.1 

This  idea,  with  some  qualifications  eliminating  the  minutiae  of 
detail  introduced  by  Hobbes,  is  reaffirmed  and  extensively  elabo- 
rated on  the  basis  of  modern  science,  by  Herbert  Spencer. 

1  See  preface  to  his  "  Leviathan  ;  or,  The  Matter,  Form,  and  Power  of  a  Com- 
monwealth, Ecclesiastical  and  Civil." 


3OO  SOCIAL    ORGANISM    THEORY. 

Therefore  Rodbertus  had  the  full  warrant  of  the  continuous 
teachings  of  philosophy  from  Plato  to  Spencer  for  his  basic- 
socialistic  postulate  that  "  the  community  is  the  end  in  itself.  In- 
dividuals are  only  the  means  for  the  promotion  of  social  well- 
being  ;  they  are  in  no  sense  ends  in  themselves."  1  From  this 
point  of  view  he  logically  held  that  public  policy  should  constantly 
be  directed  towards  putting  the  ownership  of  property,  especially 
the  means  of  production  into  the  hands  of  government.  This 
idea  has  been  more  thoroughly  developed  by  Karl  Marx, 
who  endeavors  to  show  that  from  the  nature  of  economic 
phenomena  the  ownership  of  the  means  of  production  can  only 
reside  in  the  community,  which  theory  is  made  the  basis  for 
public  policy  by  all  shades  of  socialists.  That  socialists  should 
readily  accept  the  traditional  theory  is  not  surprising,  because  it 
sustains  their  a  priori  assumption  that  the  state  should  do  every 
thing.  But  with  Mr.  Spencer  the  case  is  quite  different,  as  he  is 
the  most  extreme  representative  of  the  individualist  school. 
He  regards  socialism  as  slavery,2  and  state  ownership  and  con- 
trol of  industrial  enterprises  as  inimical  to  progress.  Now 
the  supremacy  of  industrial  individualism  is  incompatible  with 
the  existence  of  a  social  organism.  The  question,  however,  is  not 
whether  Mr.  Spencer's  position  on  the  organic  structure  of  society 
is  consistent  with  his  theory  of  individualism,  but  whether  it  is 
scientifically  and  philosophically  sound.  This  is  the  more  im- 
portant, because  Mr.  Spencer  stands  pre-eminently  for  the  scien- 
tific method  of  investigation.  Indeed,  his  conclusions  upon  this 
point  are  regarded  as  the  sociological  embodiment  of  the  doctrine 
of  evolution,  and  may  be  taken  as  representing  those  of  evolu- 
tionists generally  upon  this  subject.  The  fact  that  Mr.  Spencer 
occupies  this  leading  position  in  the  world  of  scientific  sociology 
makes  a  careful  consideration  of  his  position  on  this  subject  of 
the  utmost  importance.  In  setting  forth  his  reason  for  conclud- 
ing that  society  is  an  organism,  he  says  : 

11  So  completely,  however,  is  a  society  organized  upon  the  same 
system  as  an  individual  being,  that  we  may  almost  say  there  is 
something  more  than  analogy  between  them.  .  '.  .  A  still  more 
remarkable  fulfilment  of  this  analogy  is  to  be  found  in  the  fact, 

1  Political  Science  Quarterly,  September,  1889,  p.  546. 

2  "  The  Coming  Slavery,"  Popular  Science  Mnnthly,  April,  1884. 


SPENCER'S    THEORY  OF  SOCIETY.  30! 

that  the  different  kinds  of  organization  which  society  takes  on,  in 
progressing  from  its  lowest  to  its  highest  phase  of  development, 
are  essentially  similar  to  the  different  kinds  of  animal  organi- 
zation." 

After  a  detailed  illustration  of  the  similarity  between  society 
and  an  individual  organism,  he  says  : 

"  Thus  do  we  find,  not  only  that  the  analogy  between  a  society 
and  a  living  creature  is  borne  out  to  a  degree  quite  unsuspected  by 
those  who  commonly  draw  it,  but  also  that  the  same  definition  of 
life  applies  to  both.  Thus  the  union  of  many  men  into  one  com- 
munity— ^this  increasing  mutual  dependence  of  units  which  were 
originally  independent — this  gradual  segregation  of  citizens  into 
separate  bodies,  with  reciprocally  subservient  functions — this  for- 
mation of  a  whole  consisting  of  numerous  essential  parts — this 
growth  of  an  organism,  of  which  one  portion  cannot  be  injured 
without  the  rest  feeling  it — may  all  be  generalized  under  the  law 
of  individuation.  The  development  of  society,  as  well  as  the  de- 
velopment of  man,  and  the  development  of  life  generally,  may  be 
described  as  a  tendency  to  individuate — to  become  a  thing.  And 
rightly  interpreted,  the  manifold  forms  of  progress  going  on  around 
us  are  uniformly  significant  of  this  tendency."  l 

In  a  later  work,2  Mr.  Spencer  discusses  the  social  organism  at 
still  greater  length  and  defends  his  conception  from  the  inconsis- 
tencies of  the  Greeks  and  also  against  those  of  Hobbes.  After 
criticising  these  writers,  he  says  : 

"  Notwithstanding  errors,  however,  these  speculations  have 
considerable  significance.  That  such  analogies,  crudely  as  they 
are  thought  out,  should  have  been  alleged  by  Plato  and  Hobbes 
and  many  others,  is  a  reason  for  suspecting  that  some  analogy 
exists.  The  untenableness  of  the  particular  comparisons  above 
instanced  is  no  ground  for  denying  an  essential  parallelism  ;  for 
early  ideas  are  usually  but  vague  adumbrations  of  the' truth. 
Lacking  the  great  generalizations  of  biology,  it  was,  as  we  have 
said,  impossible  to  trace  out  the  real  relations  of  social  organiza- 
tions to  organizations  of  another  order." 

He  then  discusses  the  points  of  general  analogy  between 
society  and  living  organisms,  which  he  sums  up  by  saying  : 

1  "  Social  Statics,"  pp.  490,  493,  497.     See  also  "  First  Principles,"  pp.  408, 

413,  433-437- 

2  "Illustrations  of  Universal  Progress,"  chap.  x. 
*  Ibid.,  p.  391. 


302  SOCIETY  AND  LIVING  BODIES. 

"  Thus  we  find  but  little  to  conflict  with  the  all-important 
analogies.  .  .  .  The  principles  of  organization  are  the  same  ; 
and  the  differences  are  simply  differences  of  application.  Here 
ending  this  general  survey  of  the  facts  which  justify  the  com- 
parison of  a  society  to  a  living  body ;  let  us  look  at  them  in 
detail."  ' 

After  devoting  thirty  pages  to  the  discussion  of  details  sustain- 
ing this  analogy  he  concludes  by  saying  : 

"  Such,  then,  is  a  general  outline  of  the  evidence  which  justifies, 
in  detail,  the  comparison  of  societies  to  living  organisms.  That 
they  gradually  increase  in  mass  ;  that  they  become  little  by  little 
more  complex  ;  that  at  the  same  time  their  parts  grow  more 
mutually  dependent  ;  and  that  they  continue  to  live  and  grow  as 
wholes,  while  successive  generations  of  their  units  appear  ar>d 
disappear,  are  broad  peculiarities  which  bodies  politic  display, 
in  common  with  all  living  bodies,  and  in  which  they  and  living 
bodies  differ  from  every  thing  else."  * 

It  will  be  seen  from  the  foregoing  that  although  Mr.  Spencer 
objects  to  Hobbes'  presentation  of  the  analogy  between  the  social 
and  the  human  organization,  he  quite  as  emphatically  holds  to 
the  conclusion  that  society  is  an  organism,  whose  organic  struc- 
ture is  fundamentally  the  same  as  that  of  animal  organisms.  If 
this  be  correct,  it  of  course  follows  that  the  relation  of  the  units 
to  the  aggregate  is  the  same  and  that  the  order  of  progress  in 
society  is  the  same  as  in  the  animal  organism.  In  short,  that  a 
biological  hypothesis  adequately  explains  sociological  phe- 
nomena. 

The  fact  that  a  theory  correctly  accounts  for  one  class  of  phe- 
nomena does  not  warrant  its  application  to  another,  unless  it  can 
be  shown  to  adequately  explain  the  new  phenomena  independently 
of  its  use  in  any  other  field  of  investigation.  If  we  examine 
social  phenomena  independently  of  biological  hypothesis,  we 
shall  find  :  (i)  That  although  there  is  a  general  resemblance  be- 
tween society  and  the  animal  organism,  the  difference  between 

1  "  Illustrations  of  Universal  Progress,"  pp.  397,  398. 

*  Ibid.,  p.  428.  That  this  represents  Mr.  Spencer's  views  upon  the  subject  is 
shown  by  the  fact  that  it  is  repeated  in  his  latest  utterances.  See  "  Sociology." 
Also  correspondence  with  Huxley  in  the  Times,  September,  1889,  republished  in 
the  Popular  Science  Monthly,  February,  1890. 


SPENCER'S  POSTULATES.  303 

them  is  sufficiently  radical  and  fundamental  to  destroy  the  basis 
for  the  conclusion  that  society  is  an  organism.  (2)  That  such  an 
assumption  is  not  necessary  in  order  to  apply  the  theory  of  evo- 
lution to  social  phenomena. 

It  is  unquestionably  true  that  there  are  many  points  of  re- 
semblance between  society  and  individual  organisms,  and  so  there 
are  between  individual  organisms  ajad  inorganic  bodies.  The 
question,  therefore,  is  not  whether  there  are  any  points  of  agree- 
ment between  society  and  an  organism,  but  whether  the  points  of 
agreement  are  sufficiently  numerous  and  fundamental  to  make 
them  constitutionally  identical.  Mr.  Spencer  presents  four  char- 
acteristics in  which  society  resembles  an  individual,  which  he  re- 
gards as  sufficiently  fundamental  to  warrant  the  classification  of 
society  as  an  organism  ;  they  are  : 

"  i.  That  commencing  as  small  aggregations,  they  insensibly 
augment  in  mass  :  some  of  them  eventually  reaching  ten  thousand 
times  what  they  originally  were. 

"  2.  That  while  at  first  so  simple  in  structure  as  to  be  con- 
sidered structureless,  they  assume,  in  the  course  of  their  growth, 
a  continually-increasing  complexity  of  structure. 

"  3.  That  though  in  their  early,  undeveloped  states,  there  exists 
in  them  scarcely  any  mutual  dependence  of  parts,  their  parts 
gradually  acquire  a  mutual  dependence,  which  becomes  at  last  so 
great  that  the  activity  and  life  of  each  part  is  made  possible  only 
by  the  activity  and  life  of  the  rest. 

"  4.  That  the  life  and  development  of  a  society  is  independent 
of,  and  far  more  prolonged  than,  the  life  and  development  of  any 
of  its  component  units,  who  are  severally  born,  grow,  work,  re- 
produce, and  die,  while  the  body  politic  composed  of  them  sur- 
vives generation  after  generation,  increasing  in  mass,  completeness 
of  structure,  and  functional  activity."  ' 

There  can  be  little  doubt  that  in  these  four  characteristics 
society  resembles  the  animal  organism  ;  nor  can  there  be  any 
doubt  that  the  first  two  apply  with  equal  force  to  inorganic  de- 
velopment. These  are  as  true  of  the  development  of  inorganic 
substances  as  they  are  of  the  growth  of  plants,  animals,  or  society. 
If,  therefore,  we  are  to  assume  that  society  is  an  organism  because 
in  these  general  and  important  respects  it  resembles  an  individual, 
then  may  we  not  say  that  vegetable  and  animal  bodies  are  in- 

"  Illustrations  of  Universal  Progress,"  pp.  391,  392. 


304  SPENCER'S  ERROR. 

organic,  because,  in  these  fundamental  characteristics  they  re- 
semble inorganic  bodies  ;  and  vice  versa.  If  we  should  attempt 
to  draw  any  such  conclusion,  Mr.  Spencer  would  soon  correct  us 
by  pointing  out  that  the  lower  we  go  in  the  scale  of  development 
the  greater  is  the  simplicity  and  similarity  of  form.  And  thus, 
while  in  the  first  two  characteristics  animal  organisms  are  similar 
to  those  of  inorganic  bodies,  in  the  last  two  they  greatly  differ  ; 
for,  though  mineral  substances  like  organisms,  increase  in  mass 
and  complexity  of  structure,  they  do  not  develop  the  functional 
dependence  of  parts  exhibited  in  the  individual  organism.1 

If  the  fact  that  the  individual  organism  has  functional  activi- 
ties different  from  those  of  inorganic  bodies,  establishes  the 
distinction  between  their  classification  as  organic  and  inorganic, 
it  follows  that  a  similar  difference  between  the  constitution  of 
society  and  that  of  an  individual  organism  equally  warrants  a  dis- 
tinction in  their  classification.  If  we  examine  the  constitution  of 
society  and  the  individual  organism,  we  find  the  following  radical 
distinctions  which  are  quite  as  great  as  those  between  organic 
and  inorganic  bodies  as  pointed  out  by  Mr.  Spencer. 

I.  In  an  individual  organism  progress  consists  in  the  differ- 
entiation and  specialization  of  functions  in  which  the  aggregate 
tends  to  gain  a  more  complete  control  over  the  action  of  the  parts, 
such  as  eyes,  ears,  teeth,  tongues,  feet,  hands,  etc.,  whereas  in 
society   progress   consists  in  a   differentiation  of  functions  and 
definiteness  of  polity  in  which  the  parts  constantly  tend  to  acquire 
an  increasing  control  over  the  action  of  the  aggregate. 

II.  In  an  individual  organism  the  end  of  the  parts  is  to  serve 
and  sustain  the  aggregate  or  organism,  and  when  they  fail  to 
serve  that  end  they  become  atrophied  and  disappear,  whereas  in 
society  the  end  of  the  aggregate  is  to  serve  and  sustain  the 
individual  units. 

III.  In  an  organism,  where  consciousness  and  intelligence  exist, 
they  reside  in  the  aggregate  and  never  in  the  parts  ;  whereas  in 
society  consciousness  and  intelligence  reside  always  in  the  parts 
and  never  in  the  aggregate.     Indeed,  the  social  aggregate  has 
none  of  the  attributes  of  a  conscious  entity. 

1  ' '  Even  such  inorganic  bodies  as  crystals,  which  arise  by  growth,  show  no  such 
definite  relation  between  growth  and  existence  as  organisms." — "  Illustrations  of 
Universal  Progress,"  p.  392. 


SOCIETY  NOT  AN  ORGANISM.  305 

IV.  In  an  organism  the  existence  of  the  parts  is  subsequent  to, 
dependent  upon,  and  developed  through  the  unconscious  action  of 
the  aggregate  ;  whereas  in  society  the  aggregate  and  its  polity  or 
representative  action,  is  subsequent  to,  dependent  upon,  and  de- 
veloped through  the  conscious  action  of  the  parts. 

V.  In  an  organism  the  influences  which  promote  differentiation 
of  function  must  operate  upon  the  aggregate  or  organism,  and 
through  it  affect  the  parts  ;  whereas  in  society  the  influences 
which  promote  differentiation  must  operate  upon  the  paits  or  in- 
dividual units,  and  through  them  affect  the  constitution  of  the 
aggregate  anoVits  active  polity. 

VI.  In  society  conscious  wants,  intelligence,  and  will,  are  the 
characteristic  attributes  of  the  units  through  which  all  the  in- 
fluences  affecting   the    differentiation    of    the   social   aggregate 
must  finally  act ;  whereas   in  the  individual  organism  the  units 
have  no  such  characteristics  ;  where  these  characteristics  exist  at 
all  they  are  the  attributes  of  the  aggregate  and  not  of  the  units, 
and  in  the  lower  forms  of  animal  and  all  vegetable  organisms 
they  do  not  exist  at  all. 

It  will  thus  be  seen  that,  despite  the  general  resemblance  be- 
tween society  and  an  individual  organism,  the  difference  in  the 
functional  relation  of  the  parts  to  the  aggregate,  and  the  order  of 
their  development,  is  quite  as  marked  and  more  fundamental 
than  that  between  organic  and  inorganic  bodies.  The  differ- 
ence between  the  organic  and  the  inorganic  consists  mainly  in 
the  fact  that  the  complexity  of  structure  and  interdependence  of 
the  parts  are  greater  in  the  former  than  in  the  latter  ;  whereas 
the  difference  between  society  and  an  organism  consists  in  the 
fact  that  the  units  sustain  an  opposite  relation  to  the  aggregate, 
and  that  progressive  differentiation  is  in  an  opposite  direction  : 
in  society  the  tendency  being  to  increase  the  conscious  control 
of  the  parts  over  the  aggregate,  and  in  an  organism  to  increase 
that  of  the  aggregate  over  the  parts.  So  far  from  being  an 
organic  entity,  society  is  only  the  systematized  environment  of 
associated  individuals  by  whom  and  for  whom  it  is  created,  and 
upon  whose  state  of  industrial,  social,  and  intellectual  develop- 
ment its  existence,  form,  and  character  depend. 

Nor  is  this  view  inconsistent  with  the  doctrine  of  evolution. 
This  theory  does  not  involve  the  assumption  that  society  is  an 


306  SOCIAL   PROGRESS    UNLIKE   PHYSICAL. 

organism.  Evolution  simply  implies  a  progressive  movement 
from  a  less  to  a  more  definite,  coherent,  orderly  state  of  existence. 
But  it  does  not  follow  that  the  more  complex  form  must  neces- 
sarily be  organic  ;  since  in  that  case  inorganic  development  would 
not  be  evolution.  Although  evolution  implies  a  greater  definite- 
ness  of  functional  relation,  it  does  not  necessarily  mean  the 
individualization  of  the  aggregate.  It  is  not  strictly  correct 
therefore,  to  say  "  the  development  of  society  as  well  as  the  de- 
velopment of  men  and  the  development  of  life  generally  may  be 
described  as  a  tendency  to  individuate — to  become  a  thing."  So- 
ciety does  not  tend  to  become  a  thing,  in  the  sens»of  an  organic 
entity.  Progress  in  society  is  not  a  tendency  to  individualize  the 
social  aggregate,  but  rather  to  de-individualize  it,  making  its 
action  more  and  more  the  consciously  delegated  expression  of 
the  individual.  Indeed,  the  only  individuality  which  social  prog- 
ress develops  is  in  the  units  ;  institutions  are  specialized,  but 
man  only  is  individualized  as  an  organic  entity.  If  we  regard 
society  as  an  association  of  individuals  for  their  common  protec- 
tion and  further  development,  the  theory  of  evolution  becomes 
rationally  applicable  to  social  as  well  as  organic  and  inorganic 
phenomena.  From  this  point  of  view  the  assumption  that  society 
is  an  organism  is  unnecessary,  and  the  anomaly  of  creating  a 
colossal  social  man  with  increasing  despotic  power  over  the 
individual  disappears.  Social  progress  then  is  seen  to  be  an 
orderly  movement  towards  greater  individual  perfection,  and  per- 
sonal freedom  for  man,  which  accords  with  universal  history. 

So  far  as  human  knowledge  goes,  the  highest  individual  or- 
ganism yet  developed  is  man.  In  every  stage  of  physical 
development,  from  the  most  incoherent  homogeneous  form 
known  or  inferred,  the  movement  has  been  towards  higher  and 
more  complex  types  of  formation,  each  of  which  tended  to  make 
the  existence  of  the  next  possible.  And  the  crowning  product 
of  the  whole  series  of  inorganic  and  organic  evolution  is  man. 
With  the  appearance  of  man  began  another  phase  of  develop- 
ment which  was  neither  inorganic  nor  organic,  but  SOCIAL. 
Progress  in  this  sphere  does  not  consist  in  the  unconscious 
differentiation  of  an  inorganic  mass,  nor  in  that  of  a  living 
organism,  but  in  a  systematization  of  the  environment  and 
specialization  of  the  efforts  of  individuals,  which  results  in  a 


SPENCER    UNWITTINGLY  SOCIALISTIC.  307 

further  development  of  the  individuality  of  the  units.  It  thus 
appears  that  man  occupies  the  objective  or  crowning  position 
in  both  physical  and  social  evolution ;  with  this  difference 
however :  in  the  physical  world  he  presents  the  highest 
type  of  an  organic  aggregate,  and  in  society  he  occupies  the 
position  of  a  unit.  Thus  although  evolution  is  fundamentally 
the  same  in  society  as  in  the  physical  world,  in  that  it  is  a  move- 
ment from  the  simple  to  the  complex,  the  order  of  development 
is  reversed  ;  in  the  physical  world,  it  is  a  subordination  of 
the  parts  to  the  perfection  of  the  aggregate,  and  in  society  it 
is  a  subordination  of  the  aggregate  to  the  perfection  of  the 
units.  In  order  therefore,  to  complete  Mr.  Spencer's  statement, 
that  "  the  development  of  society  as  well  as  the  development  of 
man  and  the  development  of  life  generally,  may  be  described  as  a 
tendency  to  individuate — to  become  a  thing,"  we  must  add, 
that  this  individuating  tendency  ends  in  the  greater  individual- 
ization,  not  of  society,  but  of  man — physically  as  an  organism, 
and  socially  as  a  sovereign  personality. 

It  is  evident,  therefore,  that  the  Greek  and  Roman  conception 
that  the  state  is  every  thing,  the  individual  nothing  ;  and  the 
socialistic  position  logically  deduced  therefrom,  that  "  the  com- 
munity is  the  end  in  itself,  individuals  being  only  the  means  for 
the  promotion  of  social  well-being,  and  in  no  sense  ends  in  them- 
selves "  ;  and  Mr.  Spencer's  assumption  that  "  society  is  an  organ- 
ism," are  essentially  erroneous.  In  this,  as  in  all  other  cases  of 
reasoning  from  mistaken  hypotheses,  the  error  only  becomes 
important  when  the  theory  is  made  the  basis  of  action.  Like 
many  of  the  immature  postulates  of  the  English  economists, 
already  referred  to,  Mr.  Spencer's  theory  of  a  social  organism 
unwittingly  lays  the  logical  basis  for  state  socialism,  a  theory 
which  he  himself  regards  as  the  greatest  of  modern  fallacies. 

The  difference  between  Rodbertus  and  Mr.  Spencer  is  precisely 
the  same  as  the  difference  between  Marx  and  Ricardo.1  Marx 
arrived  at  the  conclusion  that  profits  are  robbery  by  the  logical 
application  of  the  Ricardian  postulate  that  the  quantity  instead 
of  the  cost  of  labor  determines  value.  And  Ricardo  avoided  the 
fallacy  of  Karl  Marx  only  by  failing  to  consistently  apply  his 
own  postulate.  So  the  theory  of  state  socialism  developed  by 

1  Part  III.,  chap.  vi. 


308  PROFESSOR   CLARK'S    VIEW. 

Rodbertus  is  logically  sustained  by  the  Spencerian  postulate  that 
society  is  an  organism,  and  Spencer  avoids  the  fallacy  of  social- 
ism only  by  disregarding  his  own  hypothesis. 

We  are  therefore  warranted  in  concluding  that  society  is  not  a 
colossal  "  artificial  man,"  as  affirmed  by  Hobbes,  nor  an  "  organ- 
ism "  as  affirmed  by  Spencer,  nor  an  "  end  in  itself,"  as  affirmed  by 
Rodbertus  ;  but  on  the  contrary,  that  it  is  an  association  of  indi- 
viduals as  a  means  for  the  promotion  of  individual  well-being. 
Indeed  the  history  of  government  is  the  history  of  making 
and  unmaking  social  institutions  in  order  to  render  them  more 
subservient  to  the  needs  of  the  social  life  of  the  individual. 

Nor  is  this  view  confined  to  Spencer  and  the  socialists,  but  it 
is  beginning  to  be  accepted  by  liberal  economists.  Thus  in  his 
chapter  on  "  The  Basis  of  Economic  Law  "  Professor  Clark  says  : 

"  The  analogy  between  society  and  the  human  body  was  familiar 
to  the  ancients.  It  is  a  discovery  of  recent  times  that  a  society 
is  not  merely  like  an  organism  ;  it  is  one  in  literal  fact.  .  .  . 
Political  economy  treats  not  merely  of  the  wealth  of  individuals 
who  sustain  complicated  relations  with  each  other,  but  of  the 
wealth  of  society  as  an  organic  unit."  ' 

In  a  subsequent  chapter  ("  Theory  of  Value  ")  he  makes  this 
social  organism  into  an  active  contracting  personality  who  buys 
every  thing  from  the  individual  and  sells  every  thing  to  him,  and 
says  : 

"  Exchanges  are  always  made  between  an  individual  and  society 
as  a  whole.  In  every  legitimate  bargain  the  social  organism  is  a 
party.  Under  a  regime  of  free  competition,  whoever  sells  the 
thing  he  has  produced,  sells  it  to  society.  His  sign  advertises  the 
world  to  come  and  buy,  and  it  is  the  world  not  the  chance 
customer  that  is  the  real  purchaser.  Yet  it  is  equally  true  that 
whoever  buys  the  thing  he  needs,  buys  it  off  society.  ...  In  the 
process  the  social  organism  is  true  to  its  nature  as  a  single  being 
great  and  complex,  indeed,  but  united  and  intelligent.  It  looks 
at  an  article  as  a  man  would  do,  and  mentally  measures  the 
modification  in  its  own  condition  which  the  acquisition  of  it 
would  occasion,  or  which  the  loss  of  it  wowld  occasion,  if  once 
possessed."  a 

It  will  thus  be  seen  that  according  to  Professor  Clark  society 
is  not  merely  an  organic  entity,  but  it  is  a  single  intelligent  be- 

1  "  Philosophy  of  Wealth,"  pp.  38,  39. 

2  Ibid.,  pp.  85,  86. 


CONFOUNDING  METAPHOR    WITH  FACT.  309 

ing.  If  the  analysis  of  the  economic  relation  of  individuals  to 
society  presented  by  Professor  Clark  is  correct,  then  economic 
collectivism  is  scientifically  sound  and  should  be  accepted  as 
the  basis  of  industrial  statesmanship.  But  is  the  analysis  correct  ? 

Is  it  true  that  "  exchanges  are  always  made  between  individuals 
and  society  as  a  whole  "  ?  Do  such  economic  relations  actually 
exist  ?  Where,  how,  and  under  what  conditions  does  society  "as 
a  whole  "  buy  wheat,  potatoes,  shoes,  clothes,  furniture,  etc.,  from 
individuals  ?  When  farmers  and  manufacturers  take  their 
products  to  the  market  they  do  not  sell  them  to  society,  but 
to  individuals,  who  invariably  purchase  them  either  for  their 
own  consumption  or  to  resell  them  to  other  individuals.  Nor 
does  society,  as  an  organism  of  which  individuals  "  are  but  atoms," 
consume  any  of  these  products.  They  are  consumed  by  indi- 
viduals, and  by  individuals  only.  Neither  is  the  statement  that 
"  his  sign  advertises  the  world  to  come  and  buy,  and  it  is  the 
world  and  not  the  chance  customer  that  is  the  real  purchaser," 
any  nearer  correct,  if  the  term  world  is  used  in  any  other  sense 
than  the  individuals  in  the  world. 

The  social  market  simply  expresses  the  aggregate  consumption 
of  individuals  constituting  any  social  group.  Neither  is  there 
any  truth,  except  as  a  metaphor,  in  the  statement  that  "  the  social 
organism  is  true  to  its  nature  as  a  single  being,  great  and  complex, 
indeed,  but  united  and  intelligent.  It  looks  at  an  article  as  a 
man  would  do,  and  mentally  measures  the  modification  in  its  own 
condition."  Society,  as  an  entity,  does  nothing  of  the  kind.  All 
the  "  mental  measurement,"  all  the  "  intelligence,"  all  the  con- 
scious action,  is  performed  by  individuals.  A  hundred  indi- 
viduals equally  intelligent  do  not  constitute  a  single  intelligence 
a  hundred  times  as  great  as  one.  An  intellectual  giant  cannot 
be  made  by  simply  adding  mental  Liliputians.  Intelligence 
can  only  be  increased  by  developing  it  in  the  individual  organism. 

Notwithstanding  the  immense  advantage  of  society  over  isola- 
tion— and  it  constitutes  all  the  difference  between  savagery  and 
civilization, — there  are  no  facts  to  warrant  the  assumption  that 
society  is  a  new  acting  entity,  much  less  an  individual  organ- 
ism. On  the  contrary,  the  advantage  of  society  is  entirely  to 
individuals  through  their  association  with  each  other.  In  short, 
society  is  an  association  of  individuals  for  the  better  promotion 


3IO  THE  FUNCTION  OF  GOVERNMENT. 

of  their  own  well-being,  and  therefore,  in  studying  the  law  of 
economic  movement  we  must  have  for  our  basis  the  individual ; 
in  no  other  way  can  social  progress  be  promoted. 

SECTION  III. —  The  Function  of  Government ;  or,  The  Control- 
ling Principle  in  Statesmanship, 

Having  seen  what  the  state  is  and  the  relation  it  sustains  to  the 
individual,  we  are  now  in  a  position  to  consider  its  function  as  a 
factor  in  civilization.  Nor  will  this  be  a  difficult  task,  if  we  bear 
in  mind  the  points  already  established,  namely  :  that  the  state  is 
but  the  representative  expression  of  associated  individuals,  and 
that  progress  in  society  is  a  tendency  towards  the  greater  indi- 
vidualization  of  man,  both  a  physical  organism  and  as  a  sovereign 
social  personality.  As  already  pointed  out,  social  progress  has  two 
fundamental  characteristics  ;  one  is  economic,  the  other  social. 
The  former  is  a  tendency  towards  more  wealth  for  the  individual ; 
the  latter  is  towards  more  freedom  for  the  individual.  How  to 
promote  the  increase  of  wealth  and  freedom  for  the  individual 
therefore,  is  the  problem  of  statesmanship  and  the  end  to  which 
collective  authority,  or  state  action,  should  ever  be  directed. 

In  considering  this  question  it  should  be  remembered  that 
neither  wealth  nor  freedom  can  be  authoritatively  given  to  the 
individual  ;  they  must  be  taken  by  him.  The  only  way  in  which 
the  state  can  give  wealth  to  the  individual  is  by  charity.  Wealth 
so  acquired,  instead  of  promoting  freedom,  is  one  of  the  most 
powerful  means  of  preventing  it.  Charity  in  any  form  tends  to 
create  obligation,  stereotypes  dependence,  and  thereby  destroys 
individuality,  and  makes  freedom  impossible.  The  history  of 
freedom  is  a  history  of  the  increase  of  the  sovereignty  of  the 
individual  over  his  own  actions  and  the  diminution  of  that  of  the 
state.  It  is  sometimes  said  "  that  government  is  best  which 
governs  least."  It  would  be  more  correct,  however,  to  say  that 
people  is  best  governed  which  needs  the  least  government.  We 
should  be  careful,  however,  not  to  confound  freedom  with  inde- 
pendence. The  savage  is  independent  of  social  restrictions,  but 
he  has  very  little  freedom.  He  is  in  constant  danger  of  his  life 
from  the  defencelessness  of  his  position.  He  has  no  friends 
because  he  befriends  nobody  ;  he  can  obtain  no  assistance  or 
protection  because  he  assists  and  protects  nobody.  Indeed  it  is 


VIRTUE   OF  INTERDEPENDENCE.  31! 

because  he  is  the  least  dependent  upon  his  fellows  that  he  is  the 
most  helpless  and  has  the  least  freedom  of  any  man  in  the  world. 

Mutual  dependence  is  the  greatest  promoter  of  freedom.  When- 
ever the  freedom  of  each  depends  upon  the  freedom  of  all,  no  one 
has  any  interest  in  preventing  it,  but  every  one  has  an  interest  in 
extending  it.  Mutual  dependence  cancels  obligation  and  extends 
freedom,  while  dependence  creates  obligation  and  restricts 
freedom.  It  is  only  when  everybody's  safety  depends  upon  pro- 
tecting the  safety  of  his  neighbor  that  freedom  extends  along  the 
whole  line  of  human  relations.  With  the  dependence  upon 
authority  the  case  is  entirely  different.  There  the  obligation  is  all 
on  one  side.  It  is  the  relation  of  creditor  and  debtor,  of  the 
giver  and  receiver,  of  the  master  and  ward,  and  not  that  of 
mutual  helpers  and  the  receivers  of  equivalents.  Dependence 
upon  authority  is  scarcely  less  inimical  to  freedom  than  non- 
dependence  upon  society.  The  one  involves  savagery  and  the 
other  despotism.  It  is  only  the  mutual  assistance  born  of  indi- 
vidual interdependence  that  can  make  the  highest  social  life  and 
the  maximum  individual  freedom  possible.  In  other  words,  the 
highest  individualism  promotes  the  most  complete  co-opera- 
tion of  effort,  unity  of  interest,  equity  of  relations,  freedom  of 
action,  and  complexity  of  social  life.  Evidently  then,  it  is  the 
duty  of  the  state  to  promote  in  every  way  possible  the  develop- 
ment of  the  individuality  of  its  citizens,  increase  their  mutual  de- 
pendence upon  each  other  and  to  decrease  their  dependence  upon 
the  government.  Upon  what  lines  should  the  public  policy  be 
directed  to  accomplish  this  result  ?  Paternalism  fails  to  promote 
this  end,  because  it  tends  to  lessen  instead  of  increase  the  activi- 
ties and  responsibilities  of  the  individual.  Nothing  develops 
power  but  activity,  and  nothing  creates  activity  but  the  necessity 
for  it.  We  never  put  forth  effort  to  do  for  ourselves  that  which 
others  will  do  for  us.  Since  inaction  is  fatal  to  progress,  the  in- 
crease of  paternalism  is  necessarily  a  great  barrier  to  individual 
development.  Nor  is  it  less  erroneous  to  assume  that  the  sover- 
eignty of  the  individual  can  best  be  promoted  by  merely  restrict- 
ing the  sphere  of  governmental  activities.  It  would  be  as  correct 
to  say  that  the  withdrawal  of  parental  care  and  education  from 
children  is  the  best  means  for  developing  the  highest  manhood. 

The  way  to  increase  the  sovereignty  of  the  individual  is  not  to 


312  BASIS  OF  PUBLIC  POLICY. 

arbitrarily  lessen  the  functions  of  the  state,  but  to  make  its 
activities  less  necessary.  The  necessity  of  state  action  can  be 
minimized  only  by  maximizing  the  capacity  of  the  individual.  To 
break  the  egg  from  without  is  almost  certain  to  injure  if  not  kill 
the  chick,  but  when  it  is  broken  from  within  by  the  increasing 
power  of  the  chick  itself,  it  only  breaks  when  the  chick  is  strong 
enough  to  do  without  it.  So  in  society ;  the  authority  of  the  state 
over  the  individual  should  not  disappear  by  weakening  the  forces 
without,  but  by  increasing  those  within  him.  In  short,  the  indi- 
vidual is  the  initial  point  of  social  movement. 

The  more  intelligent  and  highly  developed  the  character  of  the 
individual,  the  more  capable  he  is  of  doing  for  himself  and  more 
reluctant  to  have  others  .do  for  him.  Hence,  throughout  the  his- 
tory of  society  we  see  that  the  greater  the  ignorance  and  poverty 
the  more  marked  is  the  lack  of  individuality  in  the  social  units  ; 
and  the  weaker  the  character  of  the  individual,  the  more  despotic 
is  that  of  the  government.  A  most  significant  fact  in  this  move- 
ment is,  that  this  transfer  of  authority  from  the  state  to  the  indi- 
vidual has  always  been  exacted  by  the  individual  and  reluctantly 
yielded  by  the  stale.1  Indeed  it  is  a  fundamental  principle  in 
both  nature  and  society  that  man  can  only  continuously  have 
that  which  he  can  demand  and  maintain  by  force  of  character. 
Therefore  the  increase  of  wealth  and  the  freedom  of  the  indi- 
vidual must  come  through  influences  which  tend  to  envelop  his 
character,  thereby  making  paternalism  less  necessary  and  des- 
potism less  possible. 

It  may  therefore  be  laid  down  as  a  fundamental  postulate  in 
scientific  statesmanship,  that  the  controlling  principle  in  public  pol- 
icy should  ever  be  to  minimize  the  necessary  sphere  of  governmental 
action  and  authority,  and  to  maximize  the  possible  sphere  of  individual 
action  and  responsibility.  In  other  words,  the  function  of  govern- 
ment in  all  phases  of  industrial,  social,  and  political  life  is  to 
promote  the  development  of  the  highest  possibilities  of  the 
individual. 

1  Witness  the  protracted  agitation  that  is  always  necessary  to  extend  the  rights 
of  the  individual  in  any  direction,  the  right  of  individual  judgment  in  religion, 
the  right  to  vote,  the  right  for  women  to  own  property,  the  right  to  hold  public 
office  without  regard  to  religious  views,  the  right  to  democratic  government,  the 
right  for  women  to  vote,  even  in  a  Republic,  etc.,  etc. 


DISADVANTAGE   OF  STATE  ACTION.  313 

In  order  to  understand  the  lines  of  action  which  the  application 
of  this  principle  involves,  it  is  necessary  to  consider  :  (i)  Why, 
on  general  principle,  individual  effort  and  responsibility  are  pref- 
erable to  state  action  and  authority  ;  (2)  What  class  of  things 
can  be  administered  better  by  the  state  than  by  the  individual ; 
(3)  What  line  of  public  policy  should  be  pursued  in  order  to 
maximize  the  sphere  of  individual  action  and  responsibility  and 
thereby  minimize  the  necessity  for  governmental  authority. 

i.  On  general  principle,  individual  action  and  responsibility  are 
preferable  to  state  action  or  collective  authority,  because  they 
possess  the  maximum  possibility  of  directness,  efficiency,  econ- 
omy, and  equity.  State  action,  being  representative  whether 
elective  or  not,  is  necessarily  indirect  and  arbitrary.  Arbitrary 
action  always  involves  the  maximum  amount  of  inequity  and 
mistakes,  because  it  is  necessarily  governed  by  stipulated  rules, 
and  therefore  cannot  be  modified  to  suit  the  great  variety  of 
individual  cases.  The  universal  experience  of  mankind  confirms 
the  assumption  that  whenever  individuals  can  settle  their  affairs 
between  themselves,  the  adjustment  is  most  likely  to  be  equitable 
and  mutually  satisfactory,  and  hence  the  decision  of  a  third 
party  should  always  be  a  matter  of  last  resort. 

This  does  not  mean  that  all  courts  and  other  forms  of  governmen- 
tal action,  or  even  war,  are  unmixed  evils  ;  it  only  means  that  they 
are  necessarily  clumsy,  because  arbitrary  means  of  accomplishing 
the  desired  end.  Indispensable  as  war  may  have  been,  and  im- 
portant as  armies,  navies,  and  policemen  still  are,  it  is  universally 
admitted  that  the  less  the  necessity  for  using  them  the  better.  It 
is  because  of  the  injustice  which  always  accompanies  battle-field 
decisions  that  war  diminishes  as  individuality  in  the  average 
citizen  increases  and  civilization  advances.  The  same  arbitrary 
element  runs  through  all  collective  action,  though  it  is  some- 
times indicated  in  less  violent  and  repulsive  forms. 

Take,  for  instance,  taxation.  How  to  equitably  adjust  taxation 
has  been  a  perplexing  problem  since  human  society  began.  It 
is  because  taxes  are  levied  by  representative  authority,  according 
to  some  arbitrary  rule  which  is  utterly  incapable  of  being  adapted 
to  a  very  great  variety  of  conditions,  that  injustice  is  constantly 
being  done  to  numerous  individuals  and  frequently  to  whole 
classes.  The  same  principle  shows  itself  in  our  best  courts 


THE  DIVIDING  LINE  IMPORTANT. 

of  justice,  notwithstanding  the  jury  system  and  the  immense 
learning  of  advocates  and  judges.  When  a  case  is  given  to  a 
jury  the  legal  limits  to  their  decision  are  fixed  by  the  judge  in 
his  charge.  They  may  think  the  defendant  morally  innocent  or 
actually  justified  in  his  act,  but  by  virtue  of  a  legal  technicality 
they  are  forced  to  vote  him  guilty  and  subject  him  to  a  punish- 
ment which  both  individually  and  collectively  they  would  regard 
as  unjust.  And  so  on  through  the  whole  history  of  legal  de- 
cisions. It  is  because  of  this  preponderating  probability  of  legal 
inequity  that  in  civil  cases  wherever  disputants  can  adjust  the 
difference  themselves  they  are  generally  encouraged  to  do  so  by 
the  court.  State  action  being  necessarily  arbitrary,  and  hence 
seldom  capable  of  the  highest  efficiency,  economy,  and  equity,  it 
is  important  to  consider  what  class  of  things,  if  any,  can  natu- 
rally be  administered  by  the  state  better  than  by  individuals,  and 
vice  versa. 

2.  Since  association  is  better  than  isolation,  and  since  govern- 
ment is  necessary  to  society,  it  follows  that  while  there  are  many 
things  which  the  individual  can  do  better  than  the  state,  there 
are  some  things  which  the  state  can  do  better  than  the  indi- 
vidual. How  shall  we  determine  between  the  sphere  of  state 
and  individual  action  ?  If  we  take  an  extreme  case  from 
either  class,  there,  is  no  difficulty  in  deciding  to  which  sphere  it 
naturally  belongs.  For  instance,  if  it  is  a  question  of  determining 
one's  own  religious  opinions,  we  have  now  no  difficulty  in  deciding 
that  it  belongs  entirely  to  the  individual.  And  on  the  other  hand? 
if  it  is  a  question  of  public  defence,  such  as  requires  an  army  and 
navy,  we  have  no  difficulty  in  deciding  it  to  be  clearly  one  of 
the  functions  of  the  state.  But  when  we  come  to  the  outer  edges 
of  these  spheres  of  action  where  they  merge  together,  the  line  of 
demarcation  is  not  so  easily  observed.  Here  a  new  difficulty 
arises,  because  this  is  not  only  the  point  where  a  wise  decision  is 
most  important,  but  also  where  the  material  for  making  a  wise 
decision  is  most  difficult  to  obtain.  Although  there  is  no  differ- 
ence of  opinion  to-day  as  to  whether  or  not  the  individual  should 
choose  his  own  religion  or  the  government  should  control  the 
army,  there  is  an  immense  difference  of  opinion  as  to  whether 
telegraphs,  banks,  mines,  and  railroads  should  be  conducted 
by  private  enterprise  or  under  state  control.  The  difference  be- 


SPHERE   OF  INDIVIDUAL  ACTION.  315 

tween  the  administration  of  the  post-office  and  that  of  the  tele- 
graph is  so  slight  that  public  management  of  the  former  is  made 
the  basis  for  demanding  state  control  of  the  latter.  And  if  we 
have  nothing  upon  which  to  base  our  decision  but  the  facts  in 
the  two  particular  cases,  it  will  be  very  difficult  to  decide.  And 
if  government  control  is  extended  to  the  telegraph,  the  question 
between  that  and  the  railroad  becomes  equally  difficult  to  deter- 
mine. The  steps  from  the  railroad  to  the  mine,  from  the  mine 
to  the  farm,  from  the  farm  to  the  factory,  are  all  equally  short 
and,  of  themselves,  difficult  to  determine.  It  is  necessary  there- 
fore, to  have  some  broader  generalization  upon  which  to  base  our 
decision  than  the  data  which  each  individual  case  furnishes.  This 
can  only  be  found  by  viewing  each  individual  case  in  the  light  of 
the  general  class  to  which  it  belongs.  Since  in  the  progress  of 
society  there  is  a  constant  tendency  to  transfer  functions  from 
one  sphere  to  another,  it  is  in  the  distinctive  characteristics  of 
these  functions  that  we  must  seek  the  principle  governing  the 
line  of  demarcation  between  the  proper  sphere  of  state  and  indi- 
vidual authority,  and  thus  be  able  to  establish  a  scientific  basis 
for  determining  whether  or  not  in  any  given  instance  the  sphere 
of  state  action  should  be  extended  or  restricted. 

If  we  study  the  evolution  of  society  from  its  homogeneous 
form,  in  which  every  thing  was  done  by  authority,  to  its  present 
highly  complex  state,  where  most  things  are  done  by  individual 
enterprise,  we  can  readily  see  the  leading  characteristics  of  those 
functions  which  tend  to  pass  from  the  state  to  the  individual  and 
those  which  tend  to  become  recognized  as  distinctively  the  func- 
tion of  government.  Among  the  things  which  have  indisputably 
passed  to  the  sphere  of  individual  authority  are  the  right  to  per- 
sonal freedom,  the  selection  of  one's  partner  in  life,  and  the 
charge  of  one's  own  children,  the  right  of  free  speech,  and  of 
making  industrial  contracts. 

The  reason  why  these  are  relegated  to  the  individual  is  that  in 
all  such  cases  there  are  many  subtleties  in  which  the  individual 
is  more  directly  interested,  and  about  which  he  is  more  com- 
petent to  decide  than  any  third  party  can  possibly  be  ;  and  these 
subtleties  increase  with  the  advancing  complexity  of  social  rela- 
tions. Moreover  in  many  of  these  intricate  personal  relations 
the  decision  must  be  made  at  once  in  order  to  be  effective, 


316  SPHERE   OF  STATE  ACTION. 

and  therefore  can  be  made  only  by  the  individual  himself. 
The  arbitrary,  red-tape  character  of  government  action  neces- 
sarily precludes  complete  knowledge  of  detail  and  the  prompt 
action  necessary  in  such  cases.  Although  no  individual  is  yet 
perfect  in  this  regard,  he  has  infinitely  greater  possibilities  of  be- 
coming so  than  any  form  of  representative  authority  can  pos- 
sibly have. 

This  is  equally  true  of  economic  relations.  In  the  early  stages 
of  society,  when  industry  was  very  simple,  being  practically 
limited  to  agriculture,  with  crude  hand-methods  of  production,  it 
could  be  conducted  by  collective  authority.  But  as  wants  were 
multiplied  and  occupations  differentiated,  economic  relations 
grew  more  involved,  and  a  more  special  knowledge  became 
necessary,  which  made  arbitrary  administration  very  much  less 
efficient.  Consequently  the  ownership  of  property  and  the 
administration  of  productive  enterprise  gradually  pass  from 
public  to  private  ownership  and  control,  or  from  the  sphere  of 
state  to  that  of  individual  authority,  in  proportion  as  the  division 
of  labor,  the  concentration  of  productive  effort,  and  the  social 
freedom  of  the  individual  increased. 

On  the  other  hand,  although  governments  have  radically 
changed  their  character,  certain  functions  have  been  relegated 
to  them  by  common  consent.  Among  these  are  protection 
against  a  common  enemy,  the  maintenance  of  public  order,  the 
protection  of  individual  rights,  the  enforcement  of  contracts,  the 
administration  of  justice,  the  maintenance  of  public  roads,  canals, 
bridges,  parks,  museums,  libraries  and  the  enforcement  of  sanitary 
regulations.  Nor  is  the  reason  for  this  difficult  to  understand. 
The  administration  of  the  army,  navy,  police,  and  the  like,  is  pre- 
eminently the  function  of  the  state,  because  in  such  things  effec- 
tiveness lies  in  the  maximum  aggregation  of  physical  force,  and 
this  can  be  best  obtained  by  all  acting  as  one  man  under  a  single 
leader.  Indeed  the  most  perfect  military  force  involves  the 
maximum  despotism  and  the  minimum  individuality,  and  hence 
can  always  be  exercised  most  efficiently  by  arbitrary  authority. 
The  maintenance  of  public  order,  the  enforcement  of  contracts, 
and  the  administration  of  law  are  also  functions  which  can  be 
best  performed  by  the  collectivity,  for  the  reason  that  it  acts 
uniformly  for  all,  and  its  decisions  are  backed  by  the  power  of 


PUBLIC  AND  PRIVATE  FUNCTIONS  DEFINED.      317 

all.  Nor  does  the  development  of  individual  character  tend  to 
transfer  the  functions  of  the  soldier,  the  policeman,  the  judge, 
and  the  jailor  from  the  authority  of  the  state  to  that  of  the 
individual.  On  the  contrary,  while  it  tends  to  make  these 
functions  unnecessary,  so  long  as  they  are  needed  they  can  be 
better  performed  by  the  state  than  by  the  individual. 

The  same  is  true  of  public  highways,  such  as  roads,  canals, 
bridges,  sanitary  regulations,  etc.  They  are  common  conven- 
iences which  everybody  needs,  and  their  management  is  of  the 
simplest  character.  To  keep  such  public  conveniences  in  repair 
calls  for  no  special  skill,  and  changes  in  method  are  so  slow  and 
infrequent  that  no  inconvenience  is  experienced  by  having  them 
under  control  of  routine  authority.  Although  unlike  military 
and  police  functions,  these  do  not  diminish  but  steadily  increase 
with  the  advance  of  civilization,  there  is  no  tendency  to  put 
them  under  individual  control.  The  reason  for  this  is  that  while 
these  can  be  managed  as  well  by  the  state  as  by  the  individual, 
the  former  has  the  additional  advantage  of  giving  greater  freedom 
to  travel  by  obviating  the  inconvenience  of  direct  payment  in  the 
form  of  tolls,  etc.  And  since  these  functions  relate  only  to 
securing  the  maximum  safety  and  convenience  to  individual 
enterprise  and  mobility,  there  is  no  incentive  for  individuals  to 
undertake  them  because  they  have  no  interest  in  doing  so. 

It  may  therefore  be  laid  down  as  a  general  principle,  that  in 
proportion  as  social  functions  are  complex,  variable,  and  personal 
in  their  nature  and  interest,  requiring  instant  decisions  and 
expert  skill,  individual  management  is  superior  to  state  author- 
ity, and  conversely,  only  in  proportion  as  functions  are  simple, 
permanent,  and  arbitrary  in  their  character,  and  impersonal  in 
their  nature  and  interest,  can  they  be  efficiently  performed  by 
the  state.  In  other  words,  the  functions  of  the  state  are 
essentially  protective,  judiciary,  educational,  and  impersonal  in  their 
nature ;  hence,  all  economic  and  social  functions  which  are 
essentially  personal,  productive,  commercial,  or  experimental  in  their 
nature  properly  belong  to  the  sphere  of  individual  action  and 
responsibility. 

3.  This  brings  us  to  the  consideration  of  the  third  proposition, 
namely,  what  line  of  public  policy  should  be  pursued  in  order  to 
maximize  the  sphere  of  individual  action  and  responsibility,  and 


318  PROTECTION  AND  PATERNALISM. 

thereby  minimize  the  necessity  for  governmental  authority.  The 
doctrine  that  the  state  should  do  for  the  individual  only  such 
things  as  he  cannot  do  as  well  for  himself,  of  course  implies  that 
it  should  continue  to  do  all  those  things  which  it  can,  under  exist- 
ing conditions,  do  better  than  he.  Hence,  it  does  not  follow  that 
because  the  natural  functions  of  the  state  are  protective,  judiciary, 
educational,  and  impersonal,  that  it  should  never  perform  any 
others.  On  the  contrary,  the  state  must  continue  to  do  whatever 
the  individual  is  incapable  of  doing  as  well.  The  state  should  re- 
linquish no  function  until  it  can  be  performed  as  well  or  better  by  the 
individual ;  otherwise  many  social  duties  would  be  abandoned  alto- 
gether and  progress  greatly  retarded.  Paternalism  in  government  is  a 
necessary  substitute  for  individual  capacity,  and  consequently  increases 
as  we  descend  and  diminishes  as  we  ascend  the  scale  of  civiliza- 


Therefore,  whenever  it  is  necessary  for  the  state  to  perform 
paternal  functions — doing  for  the  individual, — it  should  always 
be  regarded  as  a  temporary  duty,  to  be  transferred  to  the  indi- 
vidual as  rapidly  as  he  acquires  the  capacity  to  perform  it.  In 
.the  last  analysis  then,  while  it  is  the  duty  of  the  government  to 
do  those  things  for  the  individual  which  he  cannot  do  as  well 
for  himself,  the  governing  principle  in  public  policy  should 
ever  be  to  protect  and  enlarge  those  OPPORTUNITIES,  and 
to  promote  those  influences  which  tend  to  develop  the  highest  possibili- 
ties of  the  individual  to  do  for  himself. 

There  is  one  other  point  worthy  of  note  before  passing  to  the 
application  of  this  principle  to  the  various  phases  of  industrial 
and  social  life — namely,  the  importance  of  distinguishing  between 
paternal  and  protective  functions.  This  distinction  is  indeed  in- 
dispensable to  scientific  statesmanship.  To  confound  the  pater- 
nal with  the  protective  principle  in  government  is  to  destroy  all 
philosophic  basis  for  a  public  policy,  yet  this  is  commonly  done 
by  many  of  the  ablest  writers.  For  instance,  such  writers  as 
Senior,  Spencer,  and  the  leading  English  economists  oppose 
state  regulation  of  the  hours  of  labor,  the  sanitary  conditions  of 
workshops,  employment  of  women  and  children  in  mines  and 
factories,  compulsory  education  of  factory  children,  and  free 
public  schools,  as  being  paternal  legislation.  They  thus  fail  to 
recognize  any  difference  between  the  policy  of  furnishing  the 


DISREPUTE   OF  ENGLISH  ECONOMICS.  319 

child  with  wholesome  sanitary  surroundings  and  an  education, 
and  that  of  furnishing  him  with  food,  clothes,  and  shelter.1 

It  is  really  this  unphilosophic  opposition  to  reform  which  has 
brought  the  doctrines  of  the  English  school  into  such  disrepute 
among  the  more  liberal  and  sympathetic  portion  of  the  commu- 
nity, and  which  in  its  reaction  has  given  much  plausibility  to 
socialism.  Indeed  it  has  made  individualism  the  synonym  for 
anti-reform  and  its  antithesis — socialism — the  means  of  reform. 

Orthodox  economists  reason  that  because  paternalism  is  in- 
jurious, protection  should  be  abandoned;  while,  on  the  other  hand, 
socialists  conclude  that  because  protection  has  been  advanta- 
geous individualism  should  be  abandoned  and  paternalism 
adopted.  By  overlooking  the  distinction -between  protection 
and  paternalism,  we  are  logically  driven  to  one  of  two  unscien- 
tific theories  of  statesmanship — laissez  faire  or  socialism. 

The  distinction  between  paternalism  and  protection  is  that  a 
paternal  policy  implies  doing  the  maximum  for  the  individual, 
while  a  protective  policy  implies  providing  the  individual  with  the 
maximum  opportunity  to  do  for  himself.  If  this  difference  were 
clearly  recognized  the  obvious  error  in  the  anti-reform  atti- 
tude of  let-aloneism  and  the  stultifying  influence  of  paternalism 
would  be  obviated.  The  duty  of  the  state  as  essentially  pro- 
tective and  educational  in  the  widest  sense  of  the  term  would 
be  easily  understood.  With  this  as  the  basis  of  public  policy,  the 
state  can  always  be  scientifically  used  as  a  means  of  promoting 
progress  without  hindering  the  growth  of  individual  freedom. 

1  This  mistake  is  strikingly  illustrated  by  Buckle  in  his  able  arraignment  of 
what  he  calls  the  protective  spirit  in  France  as  contrasted  with  the  non-protective 
spirit  in  England.  The  truth  is,  however,  that  what  Buckle  was  denouncing  in 
France  as  protection,  was  paternalism.  It  was  a  reign  of  bureaucracy  in  which 
the  state  endeavored  to  do  the  maximum  for  the  individual  instead  of  enabling 
the  individual  to  do  the  maximum  for  himself.  The  contrast  was  not  between 
protection  in  France  and  laissez  faire 'in  England,  but  a  contrast  between  pater- 
nalism in  France  and  protection  in  England.  See  "  History  of  Civilization," 
vol.  i.,  chapters  ix.  and  x.  See  also  Spencer's  "Coming  Slavery,"  Popular 
Science  Monthly,  April,  1884. 


CHAPTER  III. 

THE  PRINCIPLE  OF  INTERNATIONAL  TRADE. 

SECTION    I.  —  Increasing  Social  Opportunity  Necessitates 
National  Development. 

IN  the  preceding  discussion  four  facts  have  been  established  : 
(i)  That  social  progress  is  development  of  the  character  and 
sovereignty  of  the  individual,  to  which  end  government  is  but  a 
means.  (2)  That  the  let-alone  doctrine  is  theoretically  unscien- 
tific and  practically  impossible  in  society  ;  a  negative  government 
being  a  contradiction  in  terms.  (3)  That  since  paternalism 
limits  the  need  of  the  individual  to  do  for  himself,  it  hinders 
rather  than  helps  the  development  of  individuality.  (4)  That 
freedom  can  only  be  increased  by  the  growth  of  individual 
capacity,  which  in  turn  depends  upon  the  opportunities  for  de- 
veloping individual  character. 

In  order  to  apply  these  principles  to  the  various  phases  of 
social  and  industrial  life  it  is  necessary  at  the  outset  to  under- 
stand what  constitutes  opportunity.  In  the  first  place  it  should 
be  remembered  that  we  are  dealing  with  man  as  a  social  being  ; 
hence  it  is  only  with  the  development  of  his  character  as  a  social 
individuality  that  we  are  concerned.  Indeed  this  constitutes  all 
the  difference  between  savagery  and  civilization.  Opportunity 
then,  is  necessarily  social,  and  must  be  sought  in  man's  social 
environment — in  his  intercourse  with  his  fellow-men.  And  since 
progress  in  society  as  elsewhere,  is  the  movement  from  a  rela- 
tively simple  to  a  relatively  complex  state  of  existence,  the  social 
environment  necessary  to  constitute  opportunity  must  be  con- 
stantly increasing  in  complexity.  Social  opportunity,  therefore, 

320 


WHAT  OPPORTUNITY  IMPLIES.  321 

may  be  stated  as  necessary  contact  with  an  increasing  variety  of 
social  influences. 1 

Society  then,  is  a  necessary  prerequisite  to  individual  advance- 
ment. Society  does  not  mean  merely  an  aggregation  of  human 
beings,  but  such  an  association  of  individuals  as  shall  make  fre- 
quent intercourse  and  mutual  dependence  between  them  certain. 
This  implies  the  segregation  of  the  human  race  into  groups  or 
nations  in  which  the  individuals  have  some  industrial,  social,  and 
political  affinity,  without  which  the  contact  necessary  to  individual 
growth  is  impossible.  Consequently  the  doctrine  of  increasing 
opportunity  for  individual  development  includes  not  only  the  re- 
lation of  individuals  to  each  other  within  a  social  group  or  nation, 
but  also  the  development  of  the  nation  as  a  political  entity. 
Although  patriotism  and  the  desire  for  national  autonomy  is  a 
prominent  feature  in  the  statesmanship  of  every  country,  there  is 
no  recognized  principle  by  which  its  policy  should  be  governed. 
What  relation  the  industrial  development  of  the  nation  sustains 
to  the  civilization  and  freedom  of  the  people  ;  why,  and  under 
what  conditions  national  and  industrial  autonomy  is  necessary  to 
industrial  development,  and  what  relation  industrial  and  indi- 
vidual development  sustain  to  each  other,  are  questions  to  which 
neither  economic  nor  political  science  has  hitherto  furnished  any 
adequate  answer.  When  we  recognize  the  fact  however,  that  a 
nation  is  but  the  social  setting  of  the  individual  and  that  gov- 
ernment is  but  a  means  by  which  the  resources  of  the  nation  are 
utilized  for  promoting  the  welfare  of  the  individual,  the  im- 
portance of  considering  the  development  of  the  nation  as  a 
necessary  means  for  promoting  the  progress  of  society  at  once 
becomes  apparent. 

SECTION  II. — National  Development  Necessitates  the  Growth 
of  Manufacturing  Industries. 

In  considering  this  question  it  is  important  at  the  outset  clearly 
to  understand  what  we  mean  by  the  expression,  national  develop- 
ment. It  is  commonly  assumed  that  the  development  of  the 
material  resources  of  a  country,  as  agriculture,  mining,  or  manu- 
facture, is  necessarily  the  development  of  the  nation.  This  view 
confounds  the  physical  qualities  of  soil  and  climate  with  the 

1  "Wealth  and  Progress,"  pp.  231,  232. 
21 


322  THE  NA  TION  IS  SOCIAL. 

social  qualities  of  the  people  which  are  essentially  different. 
Such  reasoning  logically  makes  the  industrial  pursuits,  and  hence 
the  social  life,  of  the  people  depend  upon  the  physical  character- 
istics of  the  country.  Thus  instead  of  subordinating  nature  to 
man  it  subordinates  man  to  nature,  which  is  the  reverse  of  all 
progressive  tendencies  in  social  evolution.  When  we  separate 
physical  from  social  phenomena  and  recognize  the  nation  as  the 
people  this  difficulty  is  obviated  ;  it  then  becomes  evident  that 
the  social  development  of  man  is  an  end  to  which  the  physical 
development  of  nature  is  but  the  means. 

In  considering  the  development  of  a  nation  therefore,  the 
prime  question  is  not  development  of  the  natural  resources  of 
the  country,  but  development  of  the  character  of  its  people. 
The  mere  fact  that  the  soil  of  a  country  is  prolific  is  not  a  suffi- 
cient reason  why  all  the  people  should  become  agriculturists. 
The  cultivation  of  the  soil  or  of  any  material  resource  of  a 
country  should  be  made  subordinate  to  the  cultivation  of  man. 
In  other  words,  the  development  of  a  nation  consists  in  the 
development  of  its  civilizing  and  individualizing  influences.  To 
the  extent  that  the  people  of  a  nation  are  isolated  in  their  occu- 
pations and  daily  life,  will  their  social  progress  be  slow  ;  and  the 
less  frequent  intercourse  between  individuals  the  less  social- 
izing will  its  influences  be.  In  order  then,  to  increase  the 
socializing  influences  of  a  nation,  it  is  necessary  first  of  all  to 
promote  the  concentration  of  its  population.  Nor  can  this  be 
accomplished  by  mere  arbitrary  authority.  People  will  not  con- 
centrate either  in  their  social  life  or  industrial  pursuits  merely 
because  they  are  advised  or  ordered  to  do  so.  The  concentration 
of  population  means  greater  complexity  of  social  life,  which  is 
what  man  is  apt  to  avoid  except  under  the  pressure  of  some 
desire  or  necessity. 

It  is  proverbial  that  the  savage  shrinks  from  the  customs  of 
civilization,  and  the  rural  peasant  from  contact  with  city  life. 
Indeed,  people  whose  social  life  is  simple,  always  endeavor  to 
avoid  close  intercourse  with  those  in  highly  developed  society, 
because  it  means  new  and  at  first,  embarrassing  experiences. 
Nothing  will  induce  people  to  encounter  the  difficulties  of  a  new 
environment  but  the  strong  desire  for  some  object  not  otherwise 
obtainable.  So  long  as  people  can  gratify  their  desires  without 


IMPORTANCE   OF  CITIES.  323 

facing  the  difficulties  of  new  and  more  complex  social  relations, 
they  will  continue  to  do  so.  Nothing  will  permanently  centralize 
a  people  which  does  not  make  concentration  indispensable  to 
getting  a  living.  Thus  social  concentration  depends  upon  indus- 
trial concentration.  The  possibility  of  concentrating  employ- 
ments depends  upon  the  nature  of  the  industry.  Agricultural 
occupations  cannot  possibly  be  centralized  ;  they  are  isolating 
in  their  very  nature,  and  hence  are  essentially  non-socializing 
in  their  influence.  The  only  industries  which  tend  to  centralize 
and  socialize  people  are  manufacturing.  Social  isolation  is  as 
impossible  with  manufacture  as  is  social  concentration  with 
agriculture.  The  development  of  manufacturing  industries  then, 
is  an  indispensable  condition  to  national  development  and  social 
progress. 

The  development  of  manufacturing  industries  is  important  in 
many  respects.  In  the  first  place  because  it  involves  socializing 
occupations.  Factory  methods  of  production  bring  people  into 
close  social  contact  in  the  ordinary  pursuits  of  industrial  life. 
Whatever  compels  people  to  work  together,  makes  their  living 
in  close  proximity  indispensable  ;  the  modern  city  and  all  that  it 
implies  is  chiefly  the  product  of  these  two  facts.  From  time 
immemorial  the  growth  of  manufacture  and  trade  has  been  the 
means  of  developing  towns  and  cities,1  and  these  industrial 
centres  have  in  turn  ever  been  the  nurseries  of  civilization.  It  is 
always  in  the  cities  that  the  most  complex  social  environment  arises, 
and  it  is  always  there  that  the  greatest  refinement  and  highest 
individuality  exists,  and  hence  it  is  there  that  the  successful 
struggles  for  social,  religious,  and  political  freedom  have  always 
taken  place. 

The  difference  therefore,  between  agricultural  and  manufac- 
turing employments  is  very  marked.  Agriculture  is  essentially 
isolating  and  non-socializing  as  an  occupation,  and  its  products 
relate  almost  exclusively  to  physical  wants.  Hence  it  does 
practically  nothing  either  to  create  or  supply  the  social  wants 
and  life  of  man.  Manufacture,  on  the  contrary,  relates  almost 
exclusively  to  the  civilizing  and  refining  side  of  man's  character. 
The  supply  of  clothing,  furniture,  the  development  of  archi- 
tecture, music,  literature,  art,  and  every  thing  above  the  mere 
1  \Vitness  the  free  cities  of  the  Middle  Ages. 


324  ECONOMIC  OPPORTUNITY. 

physical  needs  of  the  savage,  is  directly  or  indirectly  the  result 
of  manufacture  and  its  socializing  influence.  These  things  are 
not  only  necessitated  by  man's  higher  social  wants,  but  are 
largely  consumed  as  the  result  of  his  social  relations.  Since 
manufacturing  industries  tend  both  to  create  a  socializing  en- 
vironment and  to  supply  the  social  wants  resulting  therefrom, 
they  are  doubly  indispensable  to  national  development. 

SECTION  III. — Necessary  Conditions  to  the   Development  of 
Manufacture. 

In  discussing  the  economic  and  social  wisdom  of  any  public 
policy,  the  two  important  questions  to  consider  are  :  (i)  What  is 
the  end  we  desire  to  promote  ?  (2)  What  means  will  most  surely 
promote  that  end  ? 

1.  It  may  be  safely  assumed  that  the  desired  end,  to  the  promo- 
tion of  which  statesmanship  should  be  devoted  and  public  policy 
directed,  is  the  material  and  social  progress  of  the  people.     We 
have  already  seen  that  this  involves  the  development  of  the  nation 
as  a  political  entity,  and  also  that  national  development  necessi- 
tates social  concentration  and  industrial  diversification,  which  in 
turn  depend  upon  the  growth  of  manufacturing  industries.     The 
immediate   question,    therefore,   for   the  practical  statesman  to 
consider  is,  what  will  best  promote  the  development  of  manufac- 
turing industries.     Whatever  will  promote  this  end  will  justify 
the  means  necessary  to  its  adoption.     The  question  to  ask  is  not 
what  will  it  cost  ?  but  will  it  do  it? 

2.  It   is  a  universal  law  in  nature   arid   society   that   growth 
depends  upon  opportunity.     As  already  explained,  opportunity 
is  not  to  be  interpreted  as  mere  passive  possibility,  but  as  actual 
inducement.     In  nature  opportunity  for  growth  means  the  exist- 
ence of  conditions  and  influences  which  make  it  easier  to  grow 
than  not  to  grow.     In  society,  it  is  contact  with  positive  social 
influences  which  make  refinement,  knowledge,  and  general  culture 
easier  and  more  advantageous  than  ignorance  and  crudeness  ; 
and  in  economics  it  is  the  existence  of  conditions  which  make  it 
more  profitable  to   do   than  not   to   do.     Opportunity   for   the 
development  of    manufacturing  industries  therefore,  means  the 
existence  of  conditions  which  make  manufacture  not  only  physi- 
cally possible  but  economically  profitable. 


NEED   OF  A    HOME  MARKET.  325 

Obviously  the  first  condition  necessary  to  the  growth  of  any 
industry  is  a  market  for  its  products.  Now  an  economic  market 
evidently  cannot  be  made  by  mere  fiat  of  government  because  it 
depends  on  the  habits  and  social  life  of  a  people.  But  it  can  be 
preserved  by  protecting  home  industry  in  manufacturers  to  a  cer- 
tain extent.  How  far?  Why  just  so  far  as  is  necessary  to  prevent 
home  products  from  being  undersold  by  the  products  of  lower 
paid  laborers  in  other  countries.  This  then  is  the  sober  rule  and 
principle  of  protection  as  ministering  to  human  welfare.  The 
industries  of  a  country  should  be  protected  to  the  full  amount  of  the 
difference  between  the  wage-level  of  that  nation  and  the  nations  below 
it  in  average  civilization  using  similar  methods  and  no  further,  since 
thus  the  maintenance  of  its  place  in  civilization  is  secured.  A  restric- 
tive policy  can  be  justified  only  on  the  ground  that  it  will  promote 
greater  social  advancement  than  would  otherwise  occur.  Nothing 
can  justify  the  restriction  of  freedom  except  a  demonstration  that 
it  will  ultimately  promote  more  freedom.  Will  the  protection  of 
the  home  market  increase  the  opportunities  for  developing  social- 
izing industries  ?  This  is  the  immediate  question  to  consider 
and  it  involves  a  number  of  most  important  questions,  which  will 
be  taken  up  in  their  order  as  follows  :  (i)  The  economic  and 
social  superiority  of  the  home  market  over  the  foreign  ;  (2)  the 
economic  basis  of  international  competition  ;  (3)  the  relation  of 
cost  of  production  to  international  value  ;  (4)  the  effect  of  a 
tariff  upon  the  price  of  home  products  ;  (5)  the  relation  of  tariffs 
to  wages  in  non-protected  industries  ;  (6)  the  influence  of  pro- 
tection in  the  most  advanced  countries  upon  the  progress  of  less 
civilized  countries. 

SECTION    IV. —  The  Economic  and  Social  Superiority  of  a 
Home  Market  over  a  Foreign. 

There  are  three  important  reasons  why  home  markets  are  supe- 
rior to  foreign  markets,  and  why  domestic  trade  and  manufacture 
should  always  be  encouraged  in  preference  to  foreign:  (i)  Because 
foreign  trade  is  essentially  wasteful  ;  (2)  because  foreign  mar- 
kets tend  to  enable  employers  to  permanently  profit  by  low 
wages ;  (3)  because  home  markets  most  surely  promote  the 
diversification  of  industry  and  social  progress. 


326  FOREIGN   TRADE    WASTEFUL. 

i.  Foreign  trade  is  essentially  wasteful  because  it  necessarily 
tends  to  maximize  instead  of  minimizing  the  distance  between  the 
raw  material  and  the  factory,  and  between  the  factory  and  the 
market.  For  instance,  before  the  development  of  cotton  manu- 
facture in  this  country,  our  cotton  cloth  was  made  in  England. 
The  raw  cotton  was  produced  in  South  Carolina,  sent  to  England 
to  be  manufactured,  then  brought  back  to  America.  The  con- 
sumer of  cotton  cloth  in  this  country  had  to  pay  the  cost  of 
transporting  it  twice  across  the  Atlantic,  which  was  so  much  waste 
made  necessary  by  uneconomic  conditions.  To  carry  a  product 
six  thousand  miles  in  order  to  deliver  it  to  consumers  a  hundred 
miles  away  is  to  perpetuate  the  most  costly  way  of  doing. 

Nothing  can  justify  such  waste  except  absolute  inability  to 
avoid  it.  The  mere  fact  that  England  could,  under  existing  con- 
ditions, do  the  manufacturing  at  so  much  less  cost  than  we,  as  to 
be  able  to  pay  the  transportation  both  ways,  was  no  economic 
justification  for  our  continuing  to  buy  cotton  cloth  of  her,  instead 
of  developing  the  methods  for  making  it  ourselves.  Indeed  such 
a  policy  would  have  been  as  obviously  uneconomic  as  to  have  per- 
sisted in  using  the  hand-loom  and  stage-coach  in  preference  to 
the  factory  and  railroad.  The  question  in  that  case  was  not,  can 
England,  under  existing  conditions,  supply  our  cotton  cloth 
cheaper  than  we  can  make  it  ?  but  can  we,  by  any  change  of 
conditions,  develop  the  means  of  making  it  as  cheaply  for  our- 
selves as  she  can  make  it  for  us,  and  thus  eliminate  for  all  time 
the  unnecessary  cost  of  double  transportation  ?  This  question 
was  answered  in  the  affirmative,  and  to-day  cotton  cloth  can  be 
made  as  cheaply  here  as  in  England,  and  more  cheaply  than  in 
any  other  country,  notwithstanding  our  wages  are  so  much  higher. 
Consequently  that  economic  waste  is  saved  not  only  to  us,  but  to 
all  future  generations,  to  say  nothing  of  the  social  advantage  of 
developing  the  industry  in  our  own  country. 

It  may  be  laid  down  as  a  fundamental  principle  in  economic 
production  that  all  commodities  should  be  manufactured  as 
near  as  possible  to  the  raw  material,  or  the  market  for  finished 
products.  If  a  nation  possesses  the  raw  material  for  a  given 
article,  it  should  always  develop  the  facilities  for  manufacturing 
the  finished  product  for  its  own  consumption  ;  and  any  public 
policy  which  does  not  tend  to  promote  this  end  is  inimical  to 


FOREIGN'  MARKETS  AND   HOME  WAGES.  $2? 

national  development.  Therefore,  instead  of  constantly  en- 
couraging foreign  trade,  it  should  ever  be  a  cardinal  principle  in 
statesmanship  to  develop  domestic  trade  and  home  manufacture. 

2.  Another  disadvantage  of  foreign  as  compared  with  home 
markets  is,  that  they  divorce  the  economic  interest  of  the  em- 
ployer and  the  employed.  To  the  extent  that  the  producers  in 
any  community  rely  upon  a  foreign  market  for  their  wares,  the 
employers  cease  to  have  any  economic  interest  in  the  welfare  of 
their  own  laborers.  Whenever  the  employer  is  independent  of 
the  laborers  of  his  own  country  as  consumers,  he  has  an  apparent 
interest  in  keeping  down  wages,  because,  under  those  circum- 
stances, every  reduction  of  wages  is  an  increase  of  profits.  Sup- 
pose, for  instance,  an  American  shoe  manufacturer  sells  all  his 
product  in  Europe  at  a  dollar  a  pair  ;  it  is  quite  obvious  that  if 
he  can  obtain  his  labor  at  10  per  cent,  less,  it  would  be  so  much 
addition  to  his  net  profit,  because  the  reduction  of  wages  would 
in  no  way  affect  the  consumption  of  his  shoes,  they  being  sold  in 
another  country  where  wages  remain  the  same. 

Under  a  home-market  regime  the  case  is  very  different,  be- 
cause in  domestic  trade  there  are  no  influences  that  militate 
against  the  material  welfare  of  the  laborers  which  do  not  react 
upon  that  of  the  employing  class.  The  obvious  reason  for  this 
is  that  no  market  for  factory-made  products  can  be  permanently 
sustained  without  consumption  by  the  laboring  classes.  Conse- 
quently when  the  employing  class  in  any  country  have  to  rely  on 
a  home  market  for  the  sale  of  their  products,  their  own  prosperity 
depends  directly  upon  the  consuming  capacity,  and  hence  the 
wages,  of  the  laboring  classes  in  their  own  country.  Under  such 
conditions,  whatever  reduces  wages  and  impairs  the  purchas- 
ing power  of  the  laborer  diminishes  the  market  and  undermines 
the  prosperity  of  the  employer.  Thus,  under  a  home-market 
regime,  the  employer's  success  is  dependent  upon  and  commen- 
surate with  the  prosperity  of  the  laboring  classes,  because  their 
consumption  determines  the  market  basis  for  his  production. 
But  the  days  of  foreign  markets,  as  the  chief  support  of  highly 
developed  manufacturing  industries  in  any  country,  are  doomed. 
Frequency  of  travel  and  familiar  intercourse  between  the  most 
civilized  nations  tend  to  make  exclusive  knowledge  of  productive 
methods  practically  impossible.  Hence,  as  fast  as  nations  be- 


328  A   NATION  IS  RICH  BY  WHAT  IT   USES. 

come  consumers  of  manufactured  products,  they  begin  to  make 
them  for  themselves,  and  to  use  the  improved  methods  developed 
by  thfeir  most  advanced  neighbors.  Thus  the  tendency  of  civili- 
zation is  to  make  the  industries  of  all  countries  depend  more  and 
more  upon  home  consumption.  The  economics  of  the  future 
must  be  the  economics  of  large  production,  home-market,  and 
high  wages,  which  are  the  only  industrial  conditions  compatible 
with  social  freedom  and  political  democracy. 

3.  The  third  and  by  no  means  the  least  important  reason  why 
home  markets  are  preferable  to  foreign  markets  is,  that  they  more 
surely  promote  the  diversification  of  production  and  the  sociali- 
zation of  employments.  One  of  the  popular  notions  regarding 
foreign  trade  is  that  the  prosperity  of  a  nation  is  indicated  by  the 
amount  of  its  exports,  that  it  is  rich  by  what  it  sells.  This  is  a 
great  mistake.  Nothing  indicates  the  prosperity  and  well-being 
of  a  people  but  what  they  consume.  A  nation  may  produce  ex- 
tensively and  export  largely  and  the  mass  of  its  people  remain 
very  poor.  To  the  extent  that  more  manufactured  products  are 
exported  from  any  country  than  imported  to  it,  are  its  products 
not  consumed  by  those  who  produce  them.  The  prosperity  of  a 
nation  therefore,  cannot  be  measured  by  the  wealth  it  exports  to 
other  countries,  nor  by  the  wealth  it  receives  through  the  profits 
of  foreign  trade,  but  only  by  the  wealth  its  own  people  consume, 
since  that  is  all  which  really  enters  into  their  social  life.  Thus  the 
extent  of  domestic  consumption — the  home  market — is  the  real 
measure  of  the  social  status. 

Moreover,  a  home  market  supplies  a  double  social  current, 
whereas  a  foreign  market  for  the  same  products  only  supplies  a 
single  current.  In  addition  to  the  socializing  effect  of  manufac- 
ture upon  industry,  the  home  use  of  manufactured  articles  tends 
to  increase  and  diversify  the  market  for  such  products  by  the 
social  conditions  necessarily  connected  with  their  consumption. 

For  instance,  the  consumption  of  carpets,  pictures,  music, 
millinery,  etc.,  imply  more  or  less  refined  social  relations,  which 
stimulate  not  only  the  desire  for  more  of  the  same  kind  of  things, 
but  also  create  tastes  and  desires  for  fresh  varieties  of  products. 
Thus,  while  manufacturing  industries  always  socialize,  their  so- 
cializing influence  is  necessarily  the  greatest  where  they  produce 
for  a  home  market.  This  must  not  be  interpreted  to  mean  that 


TEST  OF  ECONOMIC  CHEAPNESS.  329 

foreign  markets  are  a  disadvantage  under  all  conditions,  but  only 
that  wherever  the  development  of  a  home  market  is  possible  it  is 
always  preferable  to  a  foreign  market.  In  other  words,  foreign 
trade  is  ultimately  an  economic  disadvantage  to  a  nation  unless 
it  can  take  place  without  substituting  simpler  for  relatively  com- 
plex industries  or  lowering  wages,  and  should  be  encouraged 
under  no  other  conditions. 

SECTION  V. —  The  Economic  Basis  of  International  Compe- 
tition. 

Competition  is  regarded  as  essential  to  industry,  because  it  pro- 
motes economy  in  the  production  of  wealth  both  by  developing  the 
highest  capacity  in  the  producers  and  by  reducing  prices,  thus 
giving  the  community  the  advantage  of  the  highest  skill  and  the 
best  productive  methods.  This  unexceptionable  proposition 
has  the  advantage  of  being  one  of  the  most  uniformly  accepted 
postulates  in  economic  science.  Here  then  we  have  a  point  of 
common  agreement,  namely,  that  no  competition  can  promote 
industrial  well-being  which  does  not  tend  to  make  wealth  cheap. 
(Neither  a  free  trade  nor  a  protective  policy  therefore  can  be 
economically  justified,  except  as  it  squares  with  this  proposi- 
tion.) 

In  order  to  apply  this  test  to  public  policy,  however,  it  is 
necessary  to  understand  clearly  what  constitutes  cheap  wealth, 
and  how  to  determine  accurately  when  commodities  are  cheap 
or  dear.  Commodities  are  said  to  be  dearer  as  their  value 
rises,  and  cheaper  as  their  value  falls  ;  but  the  terms  dearer  and 
cheaper  have  no  meaning  except  as  they  indicate  that  the  articles 
referred  to  have  become  more  or  less  difficult  for  man  to  obtain. 
Wheat  cannot  be  either  cheap  or  dear  to  potatoes  or  gold,  any- 
more than  Easter  bonnets  can  be  cheap  or  dear  to  fishes.  The 
value  of  wheat  may  be  high  or  lo\v  as  compared  with  that  of 
potatoes  or  gold,  but  value  cannot  be  high  or  low  to  those 
articles  ;  it  can  be  high  or  low  only  to  man.  Nor  is  the  value  of 
an  article  high  or  low  to  man  because  it  will  exchange  for  a  larger 
or  smaller  quantity  of  gold  or  other  commodities,  but  solely  be- 
cause it  will  exchange  for  a  larger  or  smaller  quantity  of  his 
labor.  In  short,  the  terms  value,  price,  exchange,  dearness,  and 


33O  CHINESE  AND  AMERICAN  PRICES. 

cheapness  have  absolutely  no  meaning,  and  convey  no  idea 
except  in  relation  to  man. 

From  this  point  of  view  the  importance  of  economic  movement 
does  not  turn  upon  the  relation  of  one  kind  of  wealth  to  another, 
but  depends  upon  the  relation  of  all  kinds  of  wealth  to  man. 
Wealth  is  not  necessarily  cheap  or  dear  according  as  it  will  ex- 
change for  a  large  or  small  amount  of  gold,  but  only  as  it  will 
exchange  for  a  large  or  small  amount  of  labor.  That  is  to  say, 
no  matter  what  the  ratio  of  exchange  between  different  com- 
modities or  between  all  commodities  and  gold  may  be,  they  are 
cheap  or  dear  only  in  proportion  as  a  large  or  small  amount  can 
be  obtained  for  a  day's  service. 

It  may  be  said  that  the  ratio  in  which  commodities  exchange 
for  gold  always  indicates  the  ratio  in  which  they  will  exchange 
for  labor ;  that  is  to  say,  the  gold-price  always  indicates  the 
labor-price.  This  may  be  true  to  a  limited  extent  within  any 
given  country,  but  it  is  almost  never  true  as  between  different 
countries.  Take,  for  example,  this  country  and  China  ;  suppose 
shoes  of  a  given  quality  were  two  dollars  a  pair  in  this  country 
and  they  were  only  fifty  cents  a  pair  in  China,  manifestly  the 
amount  of  gold  necessary  to  obtain  a  pair  of  shoes  in  America 
would  purchase  four  pairs  in  China.  Thus  according  to  the 
gold  standard  of  measurement  shoes  in  America  would  be  three 
hundred  per  cent,  dearer  than  those  in  China,  which  is  precisely 
what  the  current  doctrine  teaches  us  to  believe.  Consequently  it 
is  laid  down  as  a  self-evident  proposition,  that  any  discrimina- 
tion which  would  prevent  the  shoes  of  China  from  entering  the 
market  of  America  at  less  than  two  dollars  a  pair  would  make 
the  shoes  of  the  American  consumer  dearer  by  three  hundred 
per  cent.;  therefore,  the  true  economic  policy  is  to  have  free 
trade  between  America  and  China,  and  thus  enable  the  American 
citizen  to  have  cheap  shoes. 

If  we  examine  such  a  transaction  from  the  standpoint  of  man 
instead  of  gold,  the  utter  fallacy  of  such  a  position  will  at  once 
be  apparent.  To  be  sure  the  shoes  in  America  cost  two  dollars 
a  pair,  but  as  the  American  mechanic  receives  two  dollars  a  day 
he  can  obtain  a  pair  of  shoes  for  a  day's  labor,  while  in  China, 
although  the  shoes  cost  but  fifty  cents  a  pair,  the  laborer  receiv- 
ing less  than  ten  cents  a  day  must  work  fully  five  days  to  obtain 


CHEAP  LABOR-PRICES  ARE  HIGH.  331 

a  pair  of  shoes.  Thus  while  measured  in  gold,  the  shoes  in 
America  cost  four  times  as  much  as  those  in  China  ;  measured  in 
labor,  the  Chinese  shoes  are  four  hundred  per  cent  dearer  than 
the  American.  Manifestly  the  two-dollar  American  shoes  are 
cheaper  for  Americans  than  the  fifty-cent  Chinese  shoes  are  for 
Chinamen.  Professors  Sumner  and  Perry  would  probably  reply 
yes,  but  Chinese  shoes  would  be  cheaper  for  Americans  than 
American  shoes  are,  because  we  could  get  four  pairs  of  Chinese 
shoes  for  the  amount  of  service  we  now  give  for  one  pair.  It  is, 
they  would  add,  just  because  the  Chinese  can  make  shoes  for 
Americans  cheaper  than  Americans  can  make  them  for  them- 
selves, that  we  want  free  trade  in  order  that  we  may  obtain  our 
shoes  from  those  who  can  make  them  cheapest.  Why  should  we 
give  the  shoemakers  of  Lynn  or  Marblehead  two  dollars  for  what 
we  can  buy  from  those  of  Pekin  or  Hong  Kong  for  one  dollar  ? 

This  argument  has  a  very  satisfactory  seeming,  but  it  has  the 
disadvantage  of  failing  to  reckon  with  the  facts.  Like  the 
Ricardian  theory,  that  "  profits  can  only  rise  as  wages  fall,"  it 
would  be  true  provided  the  assumption  upon  which  it  is  based 
were  correct — namely,  that  every  thing  else  remains  the  same. 
Of  course  the  American  consumer  would  receive  a  net  gain  by 
purchasing  his  shoes  from  China  at  fifty  cents  a  pair,  instead  of 
paying  two  dollars  in  America,  if  wages  and  other  conditions 
remained  the  same,  which  would  be  an  impossibility.  It  would 
be  just  as  rational  to  say  that  '  other  things  remaining  the  same,' 
a  brick  will  not  sink  to  the  bottom  of  a  bucket  of  water.  It  is 
precisely  because  no  two  particles  of  the  water  remain  the  same 
that  the  brick  sinks  ;  the  disturbance  caused  by  introducing  the 
brick  makes  a  readjustment  of  every  drop  of  water  necessary. 

The  same  is  true  in  the  case  before  us.  The  introduction  of 
Chinese  shoes  into  the  American  market  would  not  merely  give 
the  two-dollar  American  laborer  one  dollar  shoes,  but  to  the 
extent  that  it  operated,  would  make  it  a  general  industrial  dis- 
turbance and  therefore  cause  a  readjustment  of  economic  rela- 
tions. As  already  stated,  whatever  undersells  succeeds,  and 
whatever  succeeds  becomes  permanent,  and  whatever  becomes 
permanent  establishes  the  methods  by  which  its  success  is 
accomplished.  Therefore  if  the  shoemakers  of  China  could 
undersell  the  shoemakers  of  America  in  the  American  market, 


332  READJUSTMENT  ON  A   LOWER  PLANE. 

they  would  necessarily  succeed  in  obtaining  the  custom  of  Amer- 
ican consumers.  If  this  caused  no  other  change  than  to  reduce 
the  price  of  shoes  in  this  country,  the  case  would  be  very  simple, 
and  the  logic  of  the  laissez-faire  economist  would  be  conclusive  ; 
but  this  is  not  the  case.  On  the  contrary,  it  would  make  an 
entire  rearrangement  of  industrial  conditions  necessary,  at  least 
so  far  as  the  200,000  of  American  shoemakers  are  concerned. 

As  soon  as  American  consumers  begin  to  buy  shoes  from 
China  several  forces  will  begin  to  operate,  which  will  tend  to 
revolutionize  and  ultimately  readjust  economic  relations.  The 
American  manufacturer  will  endeavor  to  compete  with  the  China- 
man in  the  American  market,  to  do  which  he  will  be  compelled 
to  reduce  the  cost  of  producing  shoes  here  at  least  to  the  level  of 
the  cost  of  production  in  China,  together  with  the  cost  of  trans- 
portation. This  could  only  be  accomplished  in  one  of  two  ways, 
either  by  using  superior  labor-saving  machinery  or  by  reducing 
wages  equal  to  the  difference.  The  improved  machinery  could 
not  be  adopted  for  any  such  reason,  because  nothing  has  oc- 
curred to  increase  the  market  sufficiently  to  make  its  profitable 
employment  possible. 

A  slight  increase  in  the  consumption  of  shoes  might  result 
from  lowering  the  price,  but  that  would  soon  be  more  than  offset 
by  the  reduced  consumption  among  the  discharged  laborers. 
Hence  it  is  manifest  that  such  a  change  could  do  practically  noth- 
ing to  create  the  better  machinery  necessary  to  make  a  differ- 
ence in  the  cost  of  production.  The  only  other  alternative  would 
be  to  reduce  the  wages  of  shoemakers  here  to  substantially  the 
same  level  as  those  in  China.  And  this  would  not  be  limited  to 
the  men  who  simply  manufacture  the  shoes,  it  must  also  apply  to 
all  those  who  produce  the  raw  materials  and  tools  used  in  making 
shoes.  When  this  reduction  occurs,  all  the  cheapness  of  the 
imported  shoes  disappears,  because  the  capacity  of  American  la- 
borers to  purchase  shoes  is  reduced  exactly  as  much  as  the  price 
of  the  shoes  has  fallen.  If  wages  are  not  reduced,  then  the  China- 
man would  produce  the  shoes  and  the  American  shoemaker  would 
be  forced  into  idleness,  unless  he  emigrates  to  China,  in  which  case 
he  would  have  to  work  on  the  same  terms  as  the  Chinaman. 

Nor  is  there  any  warrant  for  assuming  that  the  discharged 
laborer  will  find  another  occupation.  Nothing  will  create  em- 


LOW    WAGES  NEVER   CHEAPEN    WEALTH.  333 

ployments  except  a  market  for  products.  Since  nothing  has 
occurred  in  this  instance  to  create  either  a  demand  for  new 
commodities  or  increase  the  consumption  of  existing  ones,  we 
have  no  more  right  to  assume  that  the  discharged  laborers  could 
find  new  occupations  than  we  have  to  assume  that  they  could 
live  in  luxury  without  employment.  Thus  in  the«last  analysis 
the  shoes  would  either  have  to  be  made  in  China  or  in  America 
by  Chinese  methods  ;  and  in  either  case,  American  wages  would 
be  adjusted  to  Chinese  prices.  Consequently,  instead  of  the  low- 
priced  products  from  China  giving  us  cheap  wealth  in  America,  it 
would  serve  only  to  give  us  cheap  labor  and  a  lower  civilization. 

It  may  be  regarded  as  an  economic  axiom  that  nothing  can  perma- 
nently cheapen  wealth  which  does  not  reduce  the  price  of  commodities 
relatively  to  wages,  and  this  can  never  be  accomplished  by  substituting 
cheaper  for  dearer  labor,  either  at  home  or  abroad. 

Nor  is  this  all.  Not  only  is  it  true  that  the  low-priced  shoes 
of  China  would  not  be  permanently  cheaper  to  anybody  than 
the  high-priced  shoes  of  America,  but  to  permit  the  products  of 
the  low-paid  laborers  of  Asia  to  undersell  those  of  the  high-paid 
laborers  of  America,  would  be  to  prevent  the  growth  of  the  only 
influences  which  can  make  wealth  permanently  cheaper  in  the 
future.  Just  in  proportion  as  the  high-paid  labor  of  one  country 
is  superseded  by  the  low-paid  labor  of  another,  is  the  simpler  so- 
cial life  and  small  consumption  of  the  former  substituted  for  the 
more  complex  social  life  and  larger  consumption  of  the  latter. 
This  check  in  the  demand  for  an  increasing  variety  of  products 
necessarily  prevents  the  diversification  of  industry  and  the  de- 
velopment of  manufacture,  and  consequently  lessens  the  incentive 
for  the  concentration  of  capital,  the  use  of  steam-driven  machinery, 
and  all  wealth-cheapening  methods  of  production  ;  and  thus  not 
only  fails  to  furnish  cheap  wealth  for  the  present,  but  prevents 
the  possibility  of  cheaper  wealth  in  the  future.  It  is  manifest, 
therefore,  that  from  a  philosophic  view  of  the  case  any  public 
policy  which  aids  or  permits  the  products  of  the  low-paid  labor 
of  one  country  to  undersell  the  products  of  the  high-paid  labor 
of  another,  tends  to  arrest  human  progress  by  stereotyping  lower 
civilization  and  preventing  the  growth  of  a  higher. 

Whenever  a  struggle  for  industrial  supremacy  takes  place 
between  producers  in  countries  of  differing  degrees  of  civiliza- 


334  UNECONOMIC  COMPETITION, 

tion,1  one  of  two  things  must  necessarily  occur  :  either  the  higher 
must  descend  to  the  plane  of  the  lower,  or  the  lower  must  ascend 
to  the  plane  of  the  higher.  If  the  higher-paid  producer  descends 
to  the  plane  of  the  lower,  it  will  not  be  economic  competition, 
because  in  that  case  the  low-wage  products  will  be  sure  to  undersell 
the  high-wage  products,  and  thus  enable  the  inferior  to  succeed 
against  the  superior.  In  such  a  struggle  there  is  nothing  to  de- 
velop the  best  in  the  higher,  but  every  thing  to  repress  it.  The 
cheap-labor  competitor  does  not  succeed  through  his  economic 
superiority,  but  solely  because  of  his  social  inferiority.  Such  a 
contest,  therefore,  is  contrary  to  all  conditions  of  economic  com- 
petition.2 Instead  of  being  a  contest  between  approximately 
equal  competing  units  which  tends  to  develop  the  best  in  both,  it 
is  an  unequal  struggle  in  which  the  inferior  is  sure  to  prevail 
against  the  superior. 

When  competition  takes  place  on  the  plane  of  the  higher 
wage-level,  the  result  is  very  different.  In  such  a  contest,  who- 
ever succeeds  is  compelled  to  do  so  by  employing  superior  ma- 
chinery, and  that  reduces  the  cost  of  wealth  by  saving  instead  of 
cheapening  human  labor.  Every  effort  of  the  lower  to  succeed 
against  the  higher  by  such  means  necessarily  tends  to  develop 
better  methods  of  production,  cheapen  wealth  and  promote 
social  progress  in  the  less  advanced  country,  even  if  it  fails  to 
undersell  competitors  in  a  foreign  market.  On  the  other  hand, 
in  every  such  struggle  the  high-wage  producer  is  compelled 
to  make  efforts  to  still  further  develop  the  wealth-cheapening 
methods  in  the  most  advanced  countries.  Therefore  the  con- 
test on  the  higher  plane  is  supremely  economic,  because  it 
stimulates  the  best  in  both  competitors,  guarantees  that  only 
the  superior  shall  succeed,  and  in  so  doing  helps  rather  than 
injures  the  inferior. 

This  is  precisely  what  takes  place  in  every  other  sphere  of  de- 
velopment. Evolution  is  a  constant  differentiation  and  higher 
integration  with  an  ever  increasing  complexity  of  relations.  So- 
cial progress  constantly  tends  toward  a  greater  variety  of  relations, 

1  The  most  infallible  test  of  a  relatively  high  or  low  state  of  civilization  in  any 
country  is  the  material  or  social  conditions  of  the  masses,  which  is  always  indi- 
cated by  the  rate  of  real  wages. 

2  See  definition  of  economic  competition,  p.  293. 


BASIS  OF  ECONOMIC  COMPETITION.  335 

specialization  of  functions,  and  integration  into  larger  but  more 
diversified  aggregates  ;  witness  the  tendency  towards  larger  and 
larger  cities  and  nations,  through  which  greater  freedom  and 
more  complex  and  socializing  intercourse  is  steadily  devel- 
oped. In  all  this  progressive  tendency  each  integration  takes 
place  by  the  lower  rising  to  the  plane  of  the  higher,  and  never  by 
the  higher  descending  to  that  of  the  lower.  And  this  progress 
can  only  take  place  by  the  lower  becoming  approximately  equal 
to  the  higher.  For  instance,  if  one  wants  to  move  in  a  social 
class  more  cultured  than  the  one  to  which  he  belongs,  he  can  do 
so  only  by  becoming  more  cultured  himself.  The  more  refined 
will  neither  take  on  coarser  manners  nor  tolerate  the  n  in  another 
for  the  sake  of  his  society.  Indeed,  were  it  otherwise,  progress 
would  be  impossible  ;  because  if  the  higher  would  descend  to  the 
lower,  there  would  be  no  incentive  for  the  lower  to  rise. 

Since  nothing  can  cheapen  wealth  which  does  not  reduce  the 
cost  of  production  without  diminishing  real  wages,  and  since  no 
industrial  contest  can  be  economically  competitive  which  does 
not  take  place  between  approximately  equal  competing  units,  and 
since  there  can  be  no  approximate  economic  equality  between 
contestants  except  on  the  plane  of  the  higher,  it  follows  that 
the  true  economic  basis  for  international  competition  is  the  wage-level 
of  the  dearer-labor  country.  In  order  therefore  to  apply  the  doc- 
trine of  opportunity  laid  down  in  the  previous  chapter,  and  to 
establish  international  trade  upon  a  strictly  economic  basis,  it  is 
necessary  for  the  higher-wage  country  to  discriminate  against  the 
products  of  the  lower-wage  producer  to  the  full  extent  that  the 
lower  wages  affect  the  cost  of  production,  as  this  determines  the 
competitive  status  of  the  commodity.  Thus  we  have  a  truly 
economic  basis  for  a  tariff  policy  that  shall  be  protective  without 
being  paternal.  A  tariff  policy  based  upon  this  principle  would 
protect  the  superior  against  injury  from  the  inferior,  without 
affording  the  slightest  monopolistic  impediment  to  economic 
rivalry.  Instead  of  restricting  wholesome  competition,  this  would 
simply  protect  the  competitive  opportunity  for  the  "  fittest  to 
survive,"  the  test  of  fitness  always  being  the  ability  to  furnish  low- 
priced  wealth  without  employing  low-priced  labor.  Under  such 
conditions  the  products  of  foreign  countries  could  never  under- 
sell those  of  home  industry,  except  when  the  lower  price  of  the 


336  SUPERFICIAL  REASONING. 

foreign  product  is  due  to  the  use  of  superior  la.boT-sam'n^a.nd  not 
to  labor-cheapening  methods.  Consequently  whoever  undersells 
confers  a  permanent  advantage  on  the  whole  community. 

SECTION  VI. — Some  Popular  Fallacies  Considered. 

It  is  a  standing  charge  against  the  protective  doctrine  that  it 
has  no  definable  scientific  basis,  that  it  is  grounded  upon  no 
general  principle  in  nature,  society,  or  economics.  Nor  is  this 
charge  wholly  unwarranted  when  judged  by  the  accepted  reason- 
ing on  the  subject.  It  is  a  peculiar  feature  of  the  history  of 
tariff  legislation  that  it  has  been  generally  advocated  for  local  or 
special  reasons,  and  almost  never  based  upon  any  economic 
principle  susceptible  of  general  application.  In  this  country, 
where  the  protective  idea  has  reached  its  highest  development, 
the  tariff  advocate  rests  his  claim  almost  entirely  upon  the  fact 
that  we  have  made  marked  industrial  progress  under  a  protective 
regime.  He  compares  the  wages  and  social  condition  of  the 
laborers  in  high-tariff  America  with  those  of  the  laborers  in  free- 
trade  England,  and  confidently  exclaims  :  "  Behold  the  superiority 
of  a  high-tariff  policy  !  "  And,  with  equal  assurance,  he  ascribes 
the  poverty  and  social  degradation  of  Ireland  and  India  to  the 
fact  that  British  rule  has  prevented  them  from  having  a  protective 
tariff.  On  the  other  hand,  while  the  free-trader  objects  to  this 
kind  of  reasoning  by  the  protectionist  as  confounding  coincidence 
with  cause,  he  employs  it  with  equal  assurance  in  presenting  his 
own  case.  Studiously  confining  his  observation  to  European 
conditions,  he  compares  the  wages  and  social  condition  of  labor- 
ers in  England  under  free  trade  with  those  in  continental  countries 
under  protection,  but  not  with  those  in  America,  and  triumphantly 
exclaims  :  "  Behold  the  superiority  of  free  trade  !" 

By  this  mode  of  reasoning  the  English  free-trader  is  as  unable 
to  explain  why  wages  are  higher  in  America  under  protection 
than  in  England  under  free  trade,  as  is  the  American  protectionist 
to  explain  why  they  are  higher  in  England  with  free  trade  than 
in  continental  and  Asiatic  countries  under  protection.  If  the 
mere  fact  that  prosperity  accompanied  free  trade  in  England 
justifies  the  reasoning  of  the  free-trader,  then  the  fact  that  pros- 
perity accompanies  a  high  tariff  in  America  equally  justifies  the 
reasoning  of  the  protectionist.  And  when  the  free-trader  declares, 


LAW  OF  ECONOMIC  PROTECTION.  337 

as  he  does,  that  America  is  not  prosperous  by  virtue  of  the  tariff, 
but  in  spite  of  it,  the  protectionist  can  with  equal  force  reply  that 
England  is  not  prosperous  by  virtue  of  her  free  trade,  but  in  spite 
of  it.  This  line  of  reasoning  furnishes  no  scientific  means  of 
testing  the  merits  of  either  doctrine  ;  it  shows  that  progress  is 
possible  under  both  policies,  but  it  affords  no  logical  basis  for 
the  application  of  either.  What  these  facts  show  is,  that  neither 
free  trade  in  England  nor  protection  in  America  prevented  the 
growth  of  industrial  prosperity  in  those  countries,  but  they  do 
nothing  to  prove  that  this  progress  was  promoted  by  either  policy. 

Free  trade  being  simply  the  absence  of  protection,  it  follows 
that  to  discover  the  law  of  economic  protection  is  to  discover 
that  of  free-trade  also,  and  since  neither  free  trade  nor  protec- 
tion will  produce  the  best  economic  effects  under  all  conditions, 
it  is  only  by  the  knowledge  of  such  a  law  that  any  philosophic 
application  of  either  policy  is  possible.  If  the  conclusions 
reached  in  the  preceding  sections  are  correct,  however,  this  law 
is  already  established,  and  we  have  a  universal  principle  upon 
which  a  protective  and  consequently  a  free  trade  policy  can  be 
scientifically  adopted.  Briefly  stated  this  law  is  :  (i)  that  compe- 
tition can  be  economic  only  when  it  takes  place  between  approximately 
equal  competitors  ;  (2)  that  when  there  is  any  marked  difference  in 
the  wage-level  of  the  international  competitors,  such  approximate 
competitive  equality  is  possible  only  when  the  competition  is  based  upon 
the  higher  wage-level  of  the  higher  ;  (3)  that  no  lowering  of  prices 
can  cheapen  wealth  which  does  not  result  from  diminishing  the  cost  of 
production  withotit  lowering  wages. 

Bearing  these  propositions  in  mind,  we  shall  have  no  difficulty 
in  seeing  why  a  protective  policy  might  promote  industrial  pros- 
perity and  social  progress  in  America,  and  have  the  reverse  effect 
in  Austria,  India,  and  Ireland.  .  Nor  will  it  be  difficult  to  under- 
stand why  America  has  more  to  fear  from  free  trade  with  highly 
civilized  England  than  with  the  less  civilized  nations  of  Asia  and 
South  America.  And  it  will  be  equally  clear  why  a  tariff  policy 
will  not  produce  the  same  effect  with  a  high-wage  level  in  a  small 
colony  like  Victoria  with  a  million  inhabitants,  as  in  a  large 
country  like  the  United  States,  with  sixty-five  million  of  people.1 

1  See  articles  in  The  Nineteenth  Century  for  September,  1888,  and  Quarterly 
Journal  of  Economics,  October,  1888. 
22 


338  INFANT-INDUSTRY   THEORY, 

One  of  the  arguments  much  relied  upon  by  protectionists  is 
that  known  as  the  "  infant-industry  argument."  The  burden  of 
this  argument  is  that  industries  should  be  protected  in  their  early 
stages  to  prevent  them  from  being  killed  by  competition  before 
they  are  fully  established,  the  implication  being  that  when  they 
become  well  established  they  will  be  able  to  hold  their  own 
against  the  world.  For  a  time  this  idea  was  reluctantly  accepted 
by  anti-tariff  people,  but  now  that  after  having  had  protection  for 
half  a  century  and  on  the  plea  of  "  infant  industries,"  a  tariff  is 
still  demanded,  the  free-traders  naturally  ask  "  when  do  industries 
reach  maturity  ?  "  They  regard  such  reasoning  as  far  more  in- 
fantile than  the  industry,  and  insist  that  if  there  is  any  virtue  in 
the  protective  principle,  it  should  be  applied  in  behalf  of  the 
weak  against  the  strong  and  not  in  behalf  of  the  strong  against 
the  weak.  Consequently,  if  protection  can  be  justified  at  all,  it 
is  such  countries  as  Russia,  Turkey,  Italy,  Spain  and  the  in- 
dustrially weak  countries  of  South  America  that  need  protection 
against  the  United  States,  and  not  the  United  States  against 
them. 

If  the  principle  here  laid  down  had  been  recognized,  the 
obvious  fallacy  in  both  these  positions  would  have  been  appa- 
rent ;  and  the  talk  about  "  infant  industries  "  would  never  have 
been  indulged  in  by  the  protectionist,  and  the  free-trader's  re- 
joinder about  protecting  the  lower  against  the  higher  would  have 
been  too  absurd  for  utterance.  It  would  then  have  been  seen 
that  the  products  of  America  do  not  need  protection  against 
those  of  England  because  the  industries  are  younger,  but  be- 
cause they  are  made  under  a  higher  civilization — a  civilization 
in  which  the  human  element  in  production  is  more  expensive. 
Hence,  to  permit  the  products  of  America  to  be  undersold  by 
those  of  another  country,  the  lower  cost  of  which  results  entirely 
from  the  use  of  lower-paid  labor,  would  neither  give  cheaper 
wealth  nor  better  social  conditions.  It  would  also  have  been 
clear  that  this  fact  in  no  wise  changes  with  age,  unless  either  the 
wage-level  of  the  lower-wage  country  rises,  or  the  use  of  labor- 
saving  appliances  in  the  higher-wage  country  more  than  overcomes 
.the  difference.  Unless  one  of  these  things  occurs  protection  will 
be  as  necessary  at  the  end  of  a  thousand  years  as  it  was  the  first 
six  months,  although  both  countries  may  have  greatly  advanced. 


THE   HIGHER   REQUIRES  PROTECTION.  339 

Indeed,  the  greater  the  advancement  in  both  countries  the 
greater  will  be  the  probability  of  their  employing  similar  ma- 
chinery, thus  making  the  necessity  of  protection  depend  entirely 
upon  the  difference  in  their  respective  wage-levels,  as  is  the  case 
with  America  and  England  to-day.  Therefore,  when  the  tariff 
advocate  asks  for  protection  simply  because  the  industry  is 
young,  and  the  free-trader  opposes  it  on  the  assumption  that  the 
producers  in  a  superior  civilization  ought  to  be  able  to  eco- 
nomically compete  with  those  in  an  inferior  civilization,  they 
both  mistake  the  true  economic  gist  of  the  problem.  Social 
superiority,  instead  of  making  protection  unnecessary,  is  the  very 
thing  which  makes  it  necessary,  provided  it  is  socially  important 
to  retain  or  further  develop  the  industry. 

Nor  is  this  peculiar  to  industry  ;  it  is  a  general  principle 
throughout  society.  In  every  phase  of  human  relations,  it  is  the 
higher  that  needs  protection  against  the  lower,  and  this  because 
the  latter  will  resort  to  methtfds  of  aggression  and  defence  which 
the  former  cannot,  for  social  or  ethical  reasons,  afford  to  em- 
ploy. Take,  for  example,  the  criminal  laws.  They  are  enacted 
to  restrain  the  morally  lower  from  injuring  the  higher  ;  it  is  to 
prevent  the  dishonest  from  plundering  the  honest,  the  ma- 
licious from  assaulting  the  well-intentioned,  that  police  courts  and 
jails  are  instituted  and  armies  maintained.  Indeed,  there  is  not 
a  restrictive  institution  maintained  in  society  which  was  not 
called  into  existence  to  protect  the  higher  from  the  injurious 
effects  of  the  lower. 

It  may  be  asked,  if  this  theory  is  correct,  why  does  not  the 
American  producer  need  a  much  higher  tariff  against  the  prod- 
ucts of  China,  Russia,  or  South  America  than  he  does  against 
those  of  England,  since  her  wage-level  much  more  nearly  ap- 
proximates to  his  own  ?  The  reason  for  this  is  very  simple.  It 
is  because  the  social  chasm  between  America  and  those  coun- 
tries is  so  great,  that  the  use  of  labor-saving  appliances  here 
more  than  makes  up  for  the  difference  in  the  cost  of  labor  in  the 
respective  countries.  In  China,  for  instance,  where  almost  every 
thing  is  made  by  hand  labor,  the  product  per  capita  is  so  small, 
compared  with  what  can  be  turned  off  by  steam-driven  machin- 
ery here,  that  it  costs  more  to  produce  an  article  there  with  labor 
at  6  cents  a  day  than  it  does  here  with  labor  at  two  dollars  a  day. 


340  INDIA,    IRELAND,  AND  RUSSIA. 

But  if  the  labor-saving  machinery  of  America  were  introduced 
into  China,  and  operated  by  their  six-cent-a-day  laborers,  then  an 
immensely  high  tariff  would  be  necessary  in  order  to  protect  the 
high  wage-level  of  America,  because,  in  that  case,  while  all  other 
items  of  cost  would  be  the  same,  the  human  element  in  the  pro- 
ductive process  would  be  many  hundred  per  cent,  dearer  here 
than  there.  This  is  why  England  is  a  more  dangerous  com- 
petitor to  us  than  China.  True,  the  wage-levels  of  America  and 
England  are  more  nearly  alike  than  are  those  of  America  and 
China,  but  the  machinery  of  America  and  England  is  still  more 
so.  Indeed,  it  is  because  the  machinery  used  in  America  and 
England  is  practically  the  same,  that  all  the  difference  in  their 
respective  wage-levels  is  directly  expressed  in  the  relative  com- 
petitive power  of  the  two  countries.  What  is  true  of  England  is 
equally  true  of  France,  Germany,  and  every  other  country,  to  the 
extent  that  they  use  similar  machinery  but  cheaper  labor  than 
we  do  ;  yet  they  may  have  very  much  cheaper  labor,  and  still  be 
practically  harmless  as  economic  competitors,  so  long  as  they 
use  poorer  machinery  or  hand  methods. 

Another  error  into  which  tariff  advocates  commonly  fall,  is  in 
thinking  that  India,  Ireland,  or  Russia  would  greatly  improve 
their  condition  if  they  imposed  a  tariff  against  British  products. 
Indeed,  there  are  not  a  few  Englishmen  to-day  who  entertain  a 
similar  notion,  and  insist  that  England  would  be  greatly  benefited 
by  adopting  a  tariff  policy  towards  America.  This  is  a  mistake, 
for  America's  wage-level  being  higher  than  England's,  we  could 
not  undersell  her  except  by  the  use  of  superior  methods,  which 
either  English  producers  would  be  forced  to  adopt  or  let  Ameri- 
can producers  do  the  work,  and  in  either  case  English  laborers 
would  have  a  net  gain.  If  the  better  methods  were  adopted  in 
England,  she  would  have  cheaper  products  without  lower  wages, 
which  would  be  equal  to  a  rise  of  wages.  If  America  made  the 
products,  the  English  laborer  could  emigrate  to  America  and 
obtain  American  wages. 

The  same  is  true  with  regard  to  England  and  continental 
countries.  Competition  between  England  and  Russia  would  not 
injure  Russia,  because  there  are  no  economic  methods  employed 
in  England  which  are  not  superior  to  those  employed  in  Russia. 
Whenever  Russia  is  undersold  by  England,  her  products  will 


ENGLAND    AND    THE   CONTINENT.  34! 

have  to  be  made  by  English  methods  either  in  England  or  in 
Russia,  and  in  either  case  the  Russian  people  will  be  benefited. 
The  only  reason  England  is  not  injured  to-day  by  competition 
with  the  countries  in  Continental  Europe  is  precisely  the  same 
as  that  which  prevents  China  from  seriously  injuring  America, 
namely  :  that  while  her  wage-level  is  higher,  her  machinery  is  so 
much  superior  to  theirs,  that  it  more  than  makes  up  the  differ- 
ence in  the  cost  of  production.1  England  has  less  to  fear,  how- 
ever, from  continental  competition  than  we  have,  because  their 
wage-level  is  nearer  to  hers  than  it  is  to  ours,  and  to  the  extent 
that  American  and  English  machinery  is  adopted  in  continental 
countries  faster  than  their  wage-level  approximates  that  of  Eng- 
land, will  their  relative  competitive  power  gain  upon  hers.  In 
fact,  unless  the  wage-level  in  continental  countries  rises  very 
rapidly,  it  can  only  be  a  matter  of  time  when  they  will  occupy 
the  same  competitive  position  to  England  that  she  now  sustains 
to  America,  in  which  case  she  will  be  compelled  either  to  adopt 
a  protective  policy  or  surrender  much  of  her  manufacture  to  con- 
tinental producers. 

It  will  thus  be  seen  that  the  seemingly  inexplicable  phenomena 
over  which  free-traders  and  protectionists  have  vainly  contended, 
become  perfectly  explainable  on  the  principle  that  international 
competition  can  only  be  beneficial  when  the  competitors  are  ap- 
proximately equal  upon  the  plane  of  the  higher.  Therefore  a 
protective  policy  is  beneficial  to  a  nation,  only  as  affecting  its 
relations  with  less  civilized  countries.  While  America  may  need 
protection  against  the  machine-made  products  of  all  other  coun- 
tries, there  is  no  country  that  can  be  permanently  benefited  by 
discriminating  against  the  products  of  America.  So  too  with 
England  ;  she  may  ultimately  require  a  tariff  against  the  machine- 
made  products  of  all  other  countries  but  America,  and  so  on.  In 
a  word,  a  tariff  can  only  be  of  any  permanent  economic  advan- 

1  According  to  Mulhall,  80  %  of  the  productive  energy  in  Great  Britain  is  fur- 
nished by  steam,  while  in  continental  countries  steam  only  represents  an  aver- 
age of  36  %.  Consequently,  the  total  cost  of  productive  power  per  thousand 
foot-tons  is  17  cents  in  Great  Britain  as  compared  with  27  cents  on  the  con- 
tinent. "  This  advantage  enables  us  (England)  as  far  as  labor  is  concerned  to 
undersell  continental  countries  by  12  #,  although  our  workmen's  wages  are 
almost  double." — "  History  of  Prices,"  pp.  54  and  57. 


342  SUPERFICIAL    OBJECTIONS. 

tage,  to  the  extent  that  it  protects  the  opportunity  for  industrial 
development  afforded  by  a  higher  wage-level  from  the  uneco- 
nomic influence  of  a  lower  wage-level  and  inferior  civilization. 

SECTION  VII. —  The  Effect  of  a   Tariff  upon  the  Price   of 
Home  Products. 

There  is  no  objection  urged  against  a  tariff  policy  so  much 
emphasized  and  so  frequently  repeated  as  the  charge  that  a  tariff 
is  necessarily  a  tax — an  oppressive  burden  upon  the  consumer. 
The  free-trade  advocates,  especially  in  this  country,  deny  that  it 
is  possible  to  improve  the  industrial  condition  of  a  community 
by  any  system  of  tariff  legislation.  They  insist  that  at  best 
it  can  only  enable  one  class  to  gain  at  the  expense  of  another.1 
Perry  regards  a  protective  tariff  as  an  unmitigated  curse,  and 
says  :  "  Political  economy,  denouncing  it  as  the  enemy  of  man- 
kind, hopes  soon  to  throw  upon  its  loathsome  carcass  the  last 
shovelful  of  cleansing  earth."2 

It  will  not,  however,  be  difficult  to  show  that  despite  the  learn- 
ing and  dogmatism  on  its  side,  this  mode  of  treating  the  subject 
is  exceedingly  superficial.  The  assertion  that  a  tariff  is  a  tax 
bears  the  stamp  of  the  declaimer  rather  than  the  economist  ; 
while  seeming  to  say  much,  it  actually  says  nothing.  A  tax  is 
simply  a  contribution  to  the  public  treasury,  and  is  one  of  the 
innumerable  expenditures  that  social  life  makes  necessary.  The 
payment  of  two  dollars  for  a  hat  or  a  pair  of  shoes  is  just  as 
much  a  burden  upon  the  resources  of  the  citizen  as  is  a  tax  of 
two  dollars  for  the  government. 

Taxes,  like  all  other  kinds  of  expenditures,  should  be  treated  as 
an  investment,  the  wisdom  or  unwisdom  of  which  depends  not 
upon  its  amount,  but  entirely  upon  whether  it  yields  more  in 
ultimate  advantage  than  it  costs  in  immediate  disadvantage. 
This  fact  can  be  more  easily  determined  in  some  cases  than  in 

1  "  We  deny  that  they  can  gain  any  thing  from  us,  on  account  of  the  law,  but 
what  we  lose  ;    we  deny  that  the  total  gains  to  one  part  of  society  by  this 
process  can  ever  exceed  the  total  losses  of  another  part — i.e.,  that  the  process 
can  increase  the  wealth  of  the  community  ;  we  deny,  finally,  that  our  share  of 
these  hypothetical  gains  can  ever  be  redistributed  to  us  so  as  to  bring  back  our 
first  loss." — Sumner's  "  Protection  in  the  United  States,"  pp.  n  and  12. 

2  "  Political  Economy,"  p.  477. 


TAXES  ARE  INVESTMENTS.  343 

others.  For  example,  when  one  buys  a  steak,  by  the  next  meal 
time  he  can  determine  whether  or  not  he  received  an  equivalent 
for  what  he  gave  ;  whether  the  satisfaction  was  equal  to  the  cost. 
If  he  purchases  a  suit  of  clothes,  however,  the  result  cannotPbe 
so  quickly  determined.  It  will  take  several  months  to  ascertain 
whether  or  not  an  equivalent  was  given  and  received.  And  if  he 
invests  in  a  farm  or  a  factory,  a  still  longer  time  is  required  to 
decide  the  wisdom  or  unwisdom  of  the  purchase.  The  indirect 
and  impersonal  nature  of  governmental  expenditures  makes  a 
still  longer  time  necessary  to  determine  the  exact  results. 

In  order  to  determine  whether  or  not  a  tax  is  a  good  invest- 
ment, we  have  to  deal  with  general  tendencies  or  with  ultimate 
rather  than  immediate  effects.  For  instance,  if  the  wisdom  of 
the  expenditure  involved  in  maintaining  an  army,  navy,  police 
force,  were  determined  by  the  immediate  effects  at  any  given 
time,  it  would  be  regarded  as  waste.  Nevertheless  the  ex- 
penditure necessary  to  enforce  law  and  order  is  regarded  as 
a  good  investment  even  by  free-traders.  It  procures  as  good 
economic  results  as  the  expenditure  for  food,  clothes,  or  shelter, 
since  it  is  essential  to  their  enjoyment. 

The  same  is  true  of  education,  but  the  effects  here  are  still 
further  removed  from  direct  observation,  and  consequently 
must  be  judged  6n  a  still  broader  general  basis.  There  are  in 
some  countries,  and  indeed  in  some  parts  of  this  country,  those 
who  regard  a  tax  for  the  public  schools  as  an  oppressive  burden, 
an  unjust  exaction.  But  upon  a  broader  view  of  the  subject  it 
appears  that  their  general  social  safety,  freedom,  and  well-being 
largely  depend  upon  the  intelligence  of  the  great  mass  of  the 
community  in  which  they  live,  and  this  to  a  great  extent  depends 
upon  opportunities  for  popular  education.  Experience  has  con- 
clusively shown  expenditure  in  public  schools  to  be  a  good  invest- 
ment ;  it  comes  back  in  better  citizens  and  a  higher  civilization, 
which  in  turn  supplies  all  the  influences  and  conditions  that  make 
cheaper  wealth  and  larger  freedom  possible. 

In  the  same  way  must  we  estimate  the  wisdom  or  unwisdom  of 
a  protective  tariff.  In  considering  the  effect  of  a  tariff  policy 
upon  the  price  of  home  products,  we  must  not  consider  alone  the 
direct  and  immediate  effect  upon  prices,  but  also  the  indirect  and 
ultimate  effect.  It  has  already  been  pointed  out  that  the  test  of 


344  TARIFFS  AND   PROFITS. 

cheapness  is  the  ratio  in  which  labor  will  exchange  for  wealth, 
things  being  cheap  or  dear  according  as  a  large  or  small  quantity 
can  be  obtained  for  a  day's  labor.  If  home  products  can  be 
undersold  by  foreign,  solely  because  labor  is  cheaper  abroad  than 
here,  the  only  result  would  be  a  readjustment  of  prices  on  the 
lower  wage-level,  with  no  advantage  to  anybody.  Let  us  assume 
that  a  20  per  cent,  tariff  is  necessary  to  prevent  the  home  products 
from  being  thus  undersold,  that  20  per  cent,  would  not  in  any 
sense  be  a  tax  upon  the  American  consumer,  because  if  that  tariff 
were  not  applied,  the  wage-level  would  be  commensurately  low- 
ered and  a  day's  labor  would  purchase  no  more  wealth  than 
before.  To  say  that  under  such  conditions  the  home  producer 
is  enabled  to  add  as  profit  on  his  whole  product  an  amount  equal 
to  the  tariff  upon  the  foreign  product,  is  to  exhibit  a  striking 
unacquaintance  with  economic  phenomena.1  All  that  a  tariff 
can  do  in  such  instances  is  to  prevent  a  readjustment  of  prices 
on  a  lower  wage-level.  Prices  however,  would  be  governed  by 
cost  of  production,  according  to  the  law  before  stated,  just  as  if 
there  were  no  tariff.  The  competition  between  home  producers, 
together  with  the  effort  of  the  consumers,  to  purchase  at  the 
minimum,  will  force  prices  down  to  the  cost  of  producing  the 
most  expensive  portion  of  the  necessary  supply.  All  who  can 
produce  at  less  than  that,  will  obtain  the  difference  as  profit. 
Unless  the  cost  of  producing  that  dearest  portion  can  be  lessened 
by  some  other  means  than  by  lowering  wages,  it  is  utterly  impos- 
sible to  make  any  improvement  by  reducing  price. 

This  much  however,  only  applies  to  the  direct  and  immediate 
effect,  and  is  usually  the  only  aspect  which  the  advocate  of 
laissez  faire  stops  to  consider.  The  permanent  economic  influ- 
ence of  a  protective  tariff  upon  the  price  of  home  products, 
however,  is  the  indirect  and  ultimate  effect  rather  than  the  im- 
mediate and  direct.  In  preventing  the  products  of  dear  labor 
from  being  undersold  by  those  of  cheap  labor,  the  tariff  protects 
the  home  market  for  the  home  producer.  The  economic  effect 
of  this,  as  already  shown,  is  to  promote  the  growth  of  manufac- 
turing industries,  and  to  concentrate  population,  which  in  turn 
creates  a  social  environment  that  develops  new  tastes  and  habits, 
and  these  elevate  the  standard  of  living  among  the  masses,  and 
1  Cf.  President  Cleveland's  message  December  6,  1887. 


THE  PRICE   OF  COTTON  CLOTH.  345 

consequently  enlarge  the  demand  for  an  increasing  quantity  and 
variety  of  products. 

The  necessary  tendency  of  this  is  to  develop  a  higher  grade 
of  social  character  and  general  intelligence,  more  inventive  genius 
and  improved  methods  of  production,  by  which  the  cost  and 
therefore  the  price  of  commodities  is  ultimately  lowered  without 
reducing  wages.  From  the  foregoing  it  will  be  seen  that  a  tariff 
or  any  thing  else  which  prevents  a  readjustment  of  prices  on  a 
lower  wage-level  affords  protection  to  the  opportunity  for  devel- 
oping better  productive  possibilities  through  the  use  of  labor- 
saving  and  wealth-cheapening  methods.  The  effect  of  a  tariff 
upon  the  price  of  home  products,  therefore,  when  applied  accord- 
ing to  the  principles  here  laid  down,  is,  first,  to  prevent  a  wasteful 
readjustment  of  economic  relations  on  a  lower  wage-plane  ; 
second,  to  protect  opportunities  for  increasing  productive  pos- 
sibilities and  thereby  make  a  readjustment  of  economic  relations 
on  a  higher  wage-plane  necessary. 

If  space  permitted  it  could  easily  be  shown  that,  despite  the 
frequent  unseemly  higgling  and  hauling  to  help  local  producers 
by  absurd  tariff  schedules,  this  has  been  the  general  effect  of  the 
protective  policy  of  this  country.  Take,  for  example,  the  cotton 
industry,  to  which  reference  has  already  been  made.  For  reasons 
not  necessary  to  explain  here,  the  factory  system  had  its  rise  in 
England,  and  by  the  close  of  the  first  quarter  of  the  present  cen- 
tury the  use  of  steam-driven  machinery,  especially  in  the  manu- 
facture of  cotton  cloth,  had  become  well  established.  At  that 
time  the  cotton  industry  in  this  country  was  in  its  infancy,  being 
mostly  carried  on  in  small  factories  run  by  water-power.  The 
difference  in  the  development  of  this  industry  in  the  two  countries 
is  clearly  shown  by  the  number  of  factories,  amount  of  capital, 

etc.,  which,  in  1830,  was  as  follows  : 

England.  America. 

Number  of  establishments        .  1,151  801 

Capital  invested  per  establishment    . 

Number  of  spindles  per  establishment 

Number  of  looms  per  establishment 

Number  of  operatives  per  establishment 

Weekly  wages  J 

Price  per  yard  .... 


$147,680  $50,702 

8,108  1,556 

87  41 

205  77 

$2.51  $3.46 

I5i  17 


1  These  figures  represent  for  England  (1833)  the  average  weekly  wages  of 
67,819  cotton  operatives.  And  for  America  they  represent  the  average  wages 
of  31,471  cotton  operatives  in  New  England  (1830). 


346  PROTECTION  GAVE   OPPORTUNITY. 

It  will  be  seen  from  the  above  that  the  English  manufacturer 
had  a  double  advantage  over  the  American.  In  addition  to 
having  nearly  half  a  century's  start  in  the  development  of  factory 
methods,  by  which  he  had  acquired  a  much  greater  concentration 
of  capital  and  more  efficient  use  of  machinery,  he  had  an  advan- 
tage of  nearly  40  per  cent,  in  the  cost  of  his  labor.  No  argument 
is  necessary  to  show  that  under  such  conditions  it  was  impossible 
to  prevent  our  cotton  cloth  from  being  undersold  by  the  English 
without  reducing  American  wages  fully  one  third.  Nor  would 
this  reduction  in  wages  have  been  limited  to  the  factory  opera- 
tives ;  for  even  if  the  American  manufacturer  had  imported 
English  machinery  free  of  duty,  the  higher  wages  of  the  brick- 
layers, masons,  carpenters,  painters,  etc.,  would  have  made  his 
building  and  general  plant  cost  more  than  the  English.  It  would 
have  been  necessary,  therefore,  to  have  reduced  wages  in  all  these 
industries  to  practically  the  same  level  as  those  in  England,  in 
order  to  be  able  to  compete  with  the  English  manufacturer  in  our 
home  market.  To  obviate  this  difficulty  and  make  it  possible  for 
the  American  manufacturer  to  produce  for  the  American  market, 
a  tariff  was  levied  upon  English  cotton  cloth.  This,  however,  did 
not  increase  the  price  of  the  American  product,  as  is  commonly 
assumed,  but  it  increased  the  price  of  the  English  product,  there- 
by preventing  the  price  of  American  cloth  from  falling  to  the 
English  level,  and  making  it  unnecessary  to  reduce  wages  here  in 
the  cotton  and  several  other  industries.  By  thus  putting  the 
American  producer  on  an  approximate  competitive  equality  with 
the  English  in  the  American  market,  an  economic  basis  was 
furnished  for  the  development  of  cotton  manufacture  in  this 
country. 

Nor  did  this  tariff  create  a  monopoly,  by  which  the  price  of 
cotton  cloth  could  be  abnormally  increased  and  fabulous  profits 
obtained  by  the  American  producer.  On  the  contrary,  it  pre- 
vented the  English  producer  from  monopolizing  the  American 
market  through  the  use  of  cheaper  labor.  So  long  as  the  English 
producer,  by  paying  lower  wages,  could  undersell  the  American, 
there  was  no  inducement  for  the  American  to  take  the  risk  of 
investing  capital  in  improved  machinery.  But  when  this  uneco- 
nomic advantage  was  removed  and  the  competitors  in  the  Ameri- 
can market  were  put  upon  substantially  the  same  wage-level,  a 


IMPROVED   METHODS.'  347 

strong  incentive  for  developing  superior  methods  was  created, 
since  their  use  became  the  only  means  of  success. 

With  the  rapid  increase  of  population  which  our  high  wage-level 
stimulated  the  home  market  steadily  increased,  making  a  larger 
production  necessary.  This  naturally  led  to  a  greater  concentra- 
tion of  capital,  the  use  of  larger  factories  and  better  machinery, 
and  the  result  is  that  cotton  cloth,  which  could  not  be  produced 
for  less  than  seventeen  cents  a  yard  in  1830,  can  now  be  furnished 
at  a  profit  for  five  cents  a  yard,  while  the  laborer  receives  double 
the  wages  he  did  then.1  The  development  of  wealth-cheapening 
methods  in  the  cotton  industry,  which  the  protection  of  the  home 
market  has  made  possible,  will  be  seen  by  the  following  facts  for 
England  and  America  in  1830  and  1880  : 

England.  America. 

1830.  1880.    ^  1830.  1880. 

Xo.  of  establishments      .               1,151  2,671  801  726 

Capital  per  estab.        .     .         $147,680  $140,292  $50,702  $275,503 

Spindles  per  estab.     .     .               8,108  14,798  1,556  14,089 

Looms  per  estab.         .     .                     87  192  41  298 

Laborers  per  estab.     .     .                  205  180  77  228 

Wages $2.51  $4.66  $3.46  $6.45  9 

Price  of  cloth  per  yard,                     15^  6f  17  .07 

It  will  be  observed  from  the  above  that  in  1830  the  concentra- 
tion of  capital  in  the  cotton  industry  was  very  much  greater  in 
England  than  in  America,  the  ratio  of  capital  to  establishments 
being  nearly  three  times  as  large,  that  of  spindles  more  than  five 
times,  that  of  looms  twice  as  great,  and  that  of  operatives  nearly 
three  times  as  great  as  in  this  country,  while  wages  were  38  per 
cent,  lower.  But  in  1880  their  relative  position  is  reversed. 
While  in  England  the  total,  capital  invested  had  a  little  more  than 
doubled,  in  America  it  had  increased  more  than  400  per  cent.  In 
England,  with  the  increased  capital,  the  number  of  establishments 
had  been  commensurately  increased,  while  in  America  the  number 

1  See  Part  III.,  chap,  iv.,  sec.  v. 

s  The  wages  in  this  table  represent  Massachusetts  and  England  for  1883. 
The  average  weekly  wages  for  the  whole  period  from  1872  to  1883  inclusive,  in 
the  cotton  industry,  were  :  in  England,  $4.60  ;  in  Massachusetts,  $7.68 — being 
66.96.  percent,  higher  in  Massachusetts  than  England.  See  "Massachusetts 
Labor  Bureau  Report  for  1884,"  p.  419. 


348  EFFECT   UPON    OTHER  INDUSTRIES. 

of  establishments  was  actually  reduced.  Hence,  in  1880  the 
amount  of  capital  per  establishment  in  England  was  $7,000  less 
than  in  1830,  while  in  America  it  was  five  times  as  large.  The 
ratio  of  spindles  to  establishments  only  increased  in  England 
about  82  per  cent.,  while  in  America  they  increased  800  per  cent. 
The  number  of  looms  per  establishment  in  1880  had  a  little  more 
than  doubled  in  England,  while  in  America  they  increased  six- 
fold. During  this  period  the  number  of  operatives  per  establish- 
ment in  England  diminished  from  205  to  180,  while  in  America 
they  increased  from  77  to  228  ;  and  while  wages  in  England  rose 
$2.15  a  week,  in  America  they  rose  $2.99  a  week.  All  this  clearly 
demonstrates  that  the  concentration  of  capital  and  the  use  of 
labor-saving  appliances  in  this  industry  made  greater  progress  in 
America  than  in  England  after  the  home  market  regime  was  in- 
augurated. This  is  further  shown  by  the  fact  that  the  price  of 
the  product  has  been  reduced  more  here,  even  with  a  greater  rise 
in  the  wages,  than  in  England.  Consequently,  so  far  as  the 
manufacturing  process  is  concerned,  cotton  cloth  can  be  made 
cheaper  in  America  to-day  than  in  England,  notwithstanding 
that  wages  in  the  same  industry  are  38  per  cent,  higher  here  than 
there. 

Nor  was  the  beneficial  effect  of  protecting  the  home  market 
in  this  instance  limited  to  the  cotton  industry.  The  concentration 
of  capital  and  development  of  large  factories  in  the  cotton  industry 
naturally  created  a  demand  for  machinery,  which  gave  rise  to 
various  branches  of  home  manufacture  in  the  iron  industry  and 
the  numerous  industries  involved  in  the  building  trades.  With 
this  growth  of  manufacture  and  diversification  of  employment, 
industrial  centres  became  large  cities,  which  furnished  a  steadily 
increasing  market  for  the  products  of  our  food  and  raw  material, 
producing  population.  This  in  turn  necessitated  railroads,  which 
still  further  lessened  the  cost  of  production,  diversified  industry, 
cheapened  travel,  and  thereby  enabled  the  daily  paper  to  penetrate 
the  rural  districts,  and  the  country  population  to  come  into  more 
frequent  contact  with  city  life  ;  and  in  other  manifold  ways  de- 
veloped the  socializing  influences  of  the  nation,  thus  reacting  upon 
the  social  life,  standard  of  living,  and  wages  of  the  laboring  class. 

Without  attempting  to  follow  the  various  phases  of  industrial 
development  directly  or  indirectly  resulting  from  the  protection 


WAGES  IN  NON-PROTECTED  INDUSTRIES.  349' 

of  the  home  market,  it  is  perfectly  safe  to  say  that,  with  the  ad- 
vantage that  England  had  in  factory  development,  it  would  have 
been  impossible  to  develop  cotton  and  many  other  kindred 
manufacturing  industries  without  the  imposition  of  a  tariff,  or 
some  other  restrictive  policy,  unless  we  had  lowered  our  wages 
to  the  English  level.  To  have  done  that  would  have  destroyed 
the  incentive  for  emigration  and  thereby  arrested  the  rapid  in- 
crease of  our  population,  which  in  turn  would  have  commensu- 
rately  checked  the  growth  of  our  home  markets,  and  thus 
necessarily  have  greatly  hindered  the  development  of  many 
manufacturing  industries.  And  if,  without  a  tariff  we  had  main- 
tained our  higher  wage-level,  not  only  our  cotton  cloth,  but 
nearly  all  our  manufactured  products,  would  have  been  made  in 
England,  and  we  should  have  remained  practically  an  agricultural 
people,  and  hence,  in  all  probability,  would  now  be  a  third-  or 
fourth-rate  nation,  with  a  scattered  population  of  perhaps  from 
twenty  to  thirty  millions,  having  smaller  wages,  less  general  in- 
telligence, and  therefore  a  lower  civilization  than  England. 

SECTION  VIII. —  The  Relation  of  Protection  to  Wages  in  Non- 
Protected  Industries. 

One  of  the  most  plausible  objections  urged  against  tariff  legis- 
lation is  that  it  affords  no  benefit  to  those  engaged  in  non-pro- 
tected industries.  It  is  insisted  that  in  order  to  justify  a  tariff 
policy,  its  advocates  are  bound  to  show  that  it  is  as  advantageous 
to  those  engaged  in  non-protected  as  in  protected  industries. 
Nor  is  this  an  unreasonable  demand  ;  there  can  surely  be  no 
justification  for  any  public  policy  which  benefits  one  portion  of 
the  community  only  at  the  expense  of  another.  That  the  theory 
of  protection  as  hitherto  presented  has  failed  to  fulfil  this  require- 
ment can  hardly  be  questioned  by  its  most  enthusiastic  disciples. 
The  protectionists  unquestionably  believe  that  the  whole  com- 
munity is  benefited  by  a  tariff  policy,  but  they  have  hitherto  failed 
to  explain  how  a  tariff  on  the  various  articles  of  food,  clothing, 
furniture,  and  the  like,  benefits  the  carpenter,  painter,  plumber, 
bricklayer,  mason,  engineer,  compositor,  and  other  domestic 
artisans.  This  is  chiefly  due  to  the  fact  that  they  have  accepted 
the  economic  postulates  of  the  laissez-faire  economists,  especially 


350  GLADSTONE  AND  BLAINE. 

regarding  wages,  prices,  and  profits,  thus  rendering  a  philosophic 
conception  of  the  protective  principle  logically  impossible.  We 
have  a  striking  illustration  of  this  in  Mr.  Elaine's  argument  upon 
that  point  in  his  recent  controversy  with  Mr.  Gladstone.  He 
said  : 

"  He  [Mr.  Gladstone]  sees  that  the  laborers  in  what  he  calls 
the  '  protected  industries  '  secure  high  pay,  especially  as  com- 
pared with  the  European  school  of  wages.  He  perhaps  does  not 
see  that  the  effect  is  to  raise  the  wages  of  all  persons  in  the  United 
States  engaged  in- what  Mr.  Gladstone  calls  the  '  unprotected  in- 
dustries.' Printers,  bricklayers,  carpenters,  and  all  others  of  that 
class  are  paid  as  high  wages  as  those  of  any  other  trade  or  call- 
ing, but  if  the  wages  of  all  those  in  the  protected  classes  were 
suddenly  struck  down  to  the  English  standard,  the  others  must 
follow.  A  million  men  cannot  be  kept  at  work  for  half  the  pay 
that  another  million  men  are  receiving  in  the  same  country. 
Both  classes  must  go  up  or  must  go  down  together."  ' 

This  statement,  which  represents  the  gist  of  the  modern  pro- 
tectionist position  regarding  the  economic  relation  of  protection 
to  wages,  implies  two  assumptions,  neither  of  which  is  correct : 
(i)  that  wages  are  directly  increased  by  the  tariff  in  protected 
industries  ;  (2)  that  through  competition  the  rise  of  wages  in 
protected  industries  brings  the  wages  in  non-protected  industries 
up  to  the  same  level. 

i.  The  idea  that  wages  are  high  in  protected  industries  be- 
cause the  tariff  enables  the  manufacturer  to  obtain  large  profits, 
and  hence  to  pay  higher  wages,  is  one  of  the  most  popular  falla- 
cies connected  with  the  whole  tariff  discussion.  Even  if  tariffs 
increased  profits,  that  would  not  necessarily  increase  wages. 
Employers  do  not  raise  wages  merely  because  profits  are  large. 
The  increase  of  wages,  except  in  rare  cases,  does  not  come 
through  the  generosity  of  the  employer,  but  through  the  pressing 
demands  of  the  laborer.  Every  laborer  knows  and  every  states- 
man ought  to  know  that  protected  employers  are  as  ready  to 
reduce  wages,  as  reluctant  to  increase  them,  and  have  as  many 
strikes,  as  do  unprotected  employers.  But  the  assumption  that 
profits  are  larger  in  protected  than  in  unprotected  industries  has 
no  foundation  in  fact.  Even  if  a  tariff  did  at  first  produce  this 

1  North  American  Review,  January,  1890,  pp.  47,  48. 


BLAINE'S  MISTAKE.  35  I 

effect,  it  would  soon  be  destroyed  by  competition,  as  capital  would 
leave  unprotected  to  engage  in  protected  industries,  where  larger 
profits  would  be  obtained. 

Had  the  economic  law  of  profits  been  understood,  no  such 
assumption  would  have  been  made.  It  would  then  have  been 
seen  that  if  there  is  any  competition  between  producers  in  the 
same  market,  the  price  of  the  commodity  would  tend  to  equal 
the  cost  of  producing  the  most  expensive  portion  of  the  general  supply. 
If  the  cost  of  producing  the  dearest  portion  is  lessened  by  free 
trade,  the  price  will  fall ;  if  it  is  increased  by  protection,  the  price 
will  rise.  But  this  change  will  affect  the  consumer's  price,  not 
the  employer's  profit.  The  profit  in  either  case  will  represent 
the  difference  in  the  cost  of  production,  increasing  as  the  cost 
diminishes  below  that  of  the  dearest  competitor,  a  difference 
which  neither  free  trade  nor  protection  can  affect. 

2.  Mr.  Elaine's  statement,  that  "  a  million  men  cannot  be  kept 
at  work  for  half  the  pay  that  another  million  men  are  receiving 
in  the  same  country,"  is  also  very  unfortunate,  as  that  is  just  what 
is  actually  taking  place  all  the  time.  Coal  miners,  agricultural 
laborers,  and  many  others  are  working  every  day  in  this  country, 
in  many  instances  for  less  than  half  the  pay  that  many  classes  of 
workmen  in  the  cities  are  receiving.  And  what  makes  this  posi- 
tion still  more  unfortunate  is  the  fact  that  the  printers,  engineers, 
bricklayers,  carpenters,  and  others,  whose  wages  are  the  highest, 
are  employed  in  non-protected  industries  ;  hence  this  cannot  be 
the  result  of  competition  with  the  lower  wages  in  protected  in- 
dustries. Neither  is  this  difference  in  wages  in  the  same  country 
peculiar  to  nationality  or  to  political  institutions  ;  it  is  as  great 
in  America  with  protection  and  democracy  as  in  England  with 
free  trade  and  monarchy,  or  as  in  Germany  with  protection  and 
despotism.  Instead  of  wages  tending  to  uniformity  in  all  indus- 
tries in  the  same  country,  they  tend  to  a  greater  diversity  as 
industrial  differentiation  advances.  The  only  sense  in  which 
wages  tend  to  uniformity  is  in  the  same  industry  contributing  to 
the  same  market.1 

Nor  is  Mr.  Elaine's  statement,  that  "  both  classes  must  go  up 
or  must  go  down  together,"  any  nearer  correct.  Experience 
shows  that  they  do  not  necessarily  do  any  thing  of  the  kind.  For 
1  See  chapter  on  Wages. 


352  CAUSE   OF  SLAINE'S  ERROR. 

instance,  in  1725  the  wages  of  agricultural  laborers  in  England 
were  $s.  ^d.  ($1.28)  per  week  ;  those  of  carpenters,  masons,  brick- 
layers, and  other  domestic  artificers  were  6s.  ($1.44)  a  week.  In 
1800  the  wages  of  agricultural  laborers  were  us.  $d.  ($2.74)  ; 
those  of  domestic  artificers  iSs.  ($4.38).  In  1840  wages  of  agri- 
cultural laborers  were  us.  ($2.64)  ;  of  artificers  33^.'  ($7.92). 
In  1877  wages  in  the  London  building  trades  were  4.2$.  gd? 
($10.26)  a  week,  while  in  agriculture  wages  were  about  13^. 
($3.12)  a  week,  being  only  14.?.  ($3.36)  in'i884.3  In  a  word, 
during  the  present  century  the  wages  of  mechanics  and  artisans 
have  increased  more  than  twice  as  much  as  those  of  agricultural 
and  other  rural  laborers.  The  truth  is,  a  protective  tariff  does 
not  affect  wages  in  any  such  manner  as  indicated  by  Mr.  Elaine.4 
The  laborer  knows  from  experience  that  an  increase  in  the 
tariffs  on  the  particular  commodity  he  produces  does  not 
yield  any  commensurate  increase  in  his  wages.  And  to  persist 
in  telling  him  that  it  does,  can  only  result  in  destroying  his 
confidence  in  the  economic  advantage  of  a  protective  .policy. 
If  working  men  are  expected  to  take  an  intelligent  interest  in 
protection,  a  more  rational  explanation  of  its  advantages  must 
be  presented. 

1  Wade's  "  History  of  the  Working  Classes,"  p.  166. 

2  Rogers'  ''  Six  Centuries  of  Work  and  Wages,"  p.  539. 
8  Mulhall's  "  History  of  Prices,"  p.  125. 

4  This  argument  clearly  shows  that  the  American  protectionist  has  not  yet 
outgrown  the  English  demand-and-supply  (wage-fund)  fallacy,  which  is  further 
shown  by  the  fact  that  Mr.  Elaine  actually  ascribes  the  rise  of  wages  in  England 
to  the  increased  demand  for  labor  here. — North  American  Review,  January, 
1890,  p.  48.  If  this  were  true  why  did  not  wages  rise  still  more  in  Ireland, 
Germany,  Italy,  Bohemia,  etc.,  from  which  countries  the  emigration  has  been 
much  greater  than  from  England,  and  why  have  wages  risen  as  much  in  France, 
with  almost  no  emigration,  as  in  continental  countries,  where  emigration  has 
been  the  greatest  ?  The  truth  is  that  voluntary  emigration  tends  to  check  rather 
than  promote  the  rise  of  wages,  because  it  draws  off  the  best  laborers  upon  whom 
a  rise  in  the  wage-level  depends.  It  is  only  when  the  lowest  laborers  are  ex- 
ported that  home  wages  are  improved  by  the  change.  That  is  why  the  condition 
of  the  laborers  in  any  country  can  best  be  improved  at  home.  Hence  the  true 
economic  policy  is  to  develop  the  home  market  and  diversify  domestic  industry 
instead  of  relying  upon  emigration  as  the  means  of  relieving  industrial  distress. 
The  true  way  to  help  the  people  of  Russia,  India,  and  China  is  to  take  our 
civilization  to  them  and  not  to  bring  them  to  our  civilization,  and  this  can  best 
be  done  by  developing  our  own  possibilities. — See  section  ix.,  p.  98. 


HOW  TARIFFS  AFFECT  WAGES.  353 

Considered  from  the  point  of  view  here  taken,  however,  these 
seemingly  conflicting  facts  are  easily  explained.  When  we  under- 
stand that  the  price  of  labor,  like  that  of  commodities,  is  governed 
by  the  cost  of  furnishing  the  dearest  portion  of  the  necessary 
supply,  and  that  this  cost  is  determined  by  the  laborer's  standard 
of  living,  which  in  turn  depends  upon  his  character  and  social 
environment,  the  whole  subject  assumes  a  new  aspect.  It  then 
becomes  apparent  that  no  influences  can  permanently  affect 
wages  which  do  not  operate  upon  the  laborer's  social  life  and 
standard  of  living.  The  only  way  a  tariff  can  do  that  is  by 
promoting  the  concentration  and  diversification  of  industry, 
thereby  creating  more  complex  social  relations  that,  stimulate 
the  growth  of  new  desires  and  habits  and  a  higher  plane  of 
living.  Manifestly  these  influences  operate  just  as  much  upon 
the  laborers  in  non-protected  as  in  protected  industries.  The 
non-protected  printer,  carpenter,  and  painter  obtain  just  as  much 
advantage  from  the  social  influences  of  a  manufacturing  city  as 
do  their  protected  neighbors,  the  hatter  and  cigar-maker.  The 
wages  of  city  mechanics  are  higher  than  those  of  rural  laborers 
because  their  standard  of  living  is  higher,  which  is  owing,  to  the 
more  complex  social  conditions  under  which  they  live.  It  is 
only  to  the  extent  that  a  tariff  promotes  the  development  of  these 
social  conditions  by  protecting  the  home  market  that  it  in- 
fluences wages  in  any  industry.  Upon  the  principle  therefore 
that  protection  is  economically  beneficial  only  as  it  tends  to 
develop  the  socializing  influences  of  the  nation,  it  is  clear  that  its 
effect  upon  wages  is  not  limited  to  protected  industries,  but  that 
it  effects  equally  the  wages  of  all  laborers  to  the  extent  that  it 
directly  or  indirectly  affects  their  social  environment. 

If  it  were  true,  as  is  usually  assumed,  that  a  tariff  benefits  the 
laborer  through  increasing  the  employer's  profits  and  thus  en- 
abling him  to  pay  higher  wages,  it  would  be  true  as  is  often  urged 
that  the  non-protected  mechanic  has  no  interest  in  a  protective 
policy.  And  so  long  as  that  view  is  taught  by  leading  protec- 
tionists, we  may  expect  to  see  the  intelligent  laborers  in  domestic 
industries,  especially  in  our  large  cities,  become  free-traders. 
But  from  the  point  of  view  here  presented  their  interest  in  a 
protective  policy  is  quite  as  great  and  often  greater  than  that 

of  those  employed  in  the  most  highly  protected  industries.    With- 
23 


354  SOCIAL   FORCES   OA'LY  RAISE   IV AGES. 

out  the  development  of  cities  and  manufacturing  centres,  as 
already  shown,  railroads,  telegraphs  and  other  industries,  to  say 
the  least,  would  have  been  in  a  much  less  advanced  state.1  In 
which  case  the  industrial  and  social  environment  of  the  great  mass 
of  mechanics  would  have  been  more  homogeneous,  hence  a  more 
simple  social  life  and  lower  wages  would  have  been  inevitable,  as 
is  the  case  in  small  towns,  rural  districts,  and  non-manufacturing 
communities  throughout  the  world.  To  the  extent  that  a  tariff 
policy  has  developed  manufacture  and  the  growth  of  cities,  it  has 
improved  the.  social  life  and  wages  of  laborers  in  all  industries 
in  those  industrial  centres,  protected  and  non-protected.  And 
to  the  extent  that  it  has  developed  railroads  and  telegraphs,  it 
has  shortened  the  distance  between  farm  and  factory,  and  thereby 
increased  the  opportunities  that  force  rural  laborers  into  more 
frequent  contact  with  the  social  influences  of  city  life, — thus  in 
its  reflex  action  elevating  the  social  life  and  wages  of  rural 
laborers.  This  explains  why  the  wages  even  of  agricultural  and 
other  laborers  in  isolating  occupations  are  always  higher  in  the 
immediate  vicinity  of  cities  and  manufacturing  towns.2 

This  view  of  the  subject  also  enables  us  to  understand  why  a 
tariff  will  not  produce  the  same  effect  in  a  small  community  like 
an  Australian  colony,  that  it  will  in  a  large  country  like  the 
United  States,  even  though  the  wage-level  is  as  high  there  as  it  is 
here.  It  is  because  the  population  there  is  too  small  to  furnish  a 
sufficiently  large  market  to  sustain  the  use  of  the  most  highly  de- 
veloped factory  methods,  without  which  the  socializing  environ- 
ment necessary  to  raise  the  standard  of  living  and  the  rate  of 
wages  cannot  be  developed. 

There  is  one  other  fact  that  should  be  noticed  before  leaving 
this  point.  We  are  told  that  despite  the  improvements  in  ma- 
chinery and  the  general  advancement,  the  condition  of  the  factory 

1  Witness  India,  Russia,  and  Turkey  as  compared  with  this  country  in  these 
respects.  There  are  six  times  as  many  miles  of  railroad  in  New  York  State  as 
in  all  Turkey,  and  more  miles  of  railroads  in  the  United  States  than  in  all  the 
rest  of  the  world. 

*  This  fact  has  been  universally  observed  though  very  little  understood.  See 
"Wealth  and  Progress,"  pp.  160-163  ;  Rogers'  "Six  Centuries  of  Work  and 
Wages,"  pp.  171,  172,  180,  327,  535,  536.  Also  "  Wealth  of  Nations,"  Book 
I.,  ch.  viii.  For  similar  facts  in  India  see  Buchanan's  "Journey  through  the 
Countries  of  Mysore,  Canara,  and  Malabar,"  vol.  i.,  pp.  124,  125. 


MINERS  AND  FACTORY  OPERATIVES.  355 

operatives  of  New  England  and  the  miners  of  Pennsylvania  is  no 
better,  but  in  many  cases  is  worse,  than  it  was  forty  years  ago, 
although  the  products  of  these  industries  are  highly  protected. 
There  is  some  truth  in  this  statement,  and  a  great  deal  of  error. 
In  the  first  place,  it  is  not  correct  in  any  general  sense  to  say  that 
the  condition  of  the  miners  and  factory  operatives  has  not  im- 
proved. It  is  true,  however,  that  the  condition  of  the  laborers 
employed  in  those  industries  to-day,  as  compared  with  those 
of  forty  years  ago,  has  not  improved  commensurately  with  the 
progress  of  the  community.  This  fact  is  usually  taken  as  con- 
clusive evidence  that,  through  some  unjust  manipulation  of  in- 
dustrial forces,  the  laborers  in  these  industries  have  been  excluded 
from  the  beneficial  effects  of  the  increasing  wealth  and  social 
advancement. 

A  little  closer  examination  of  the  facts,  however,  will  show 
that  this  conclusion  is  erroneous.  Suppose,  for  example,  that  in 
a  given  business  the  laborers  were  intelligent  Americans  in  1850, 
but  for  some  reason  they  all  left  it  and  their  places  were  filled  by 
Italians  or  Chinamen,  would  it  be  any  test  of  the  industrial  and 
social  progress  of  the  laborers  in  the  community  to  compare  the 
wages,  character,  and  intelligence  of  these  Chinamen  and  Italians 
in  1890  with  those  of  the  Americans  who  were  employed  in  that 
industry  in  1850  ?  Such  a  comparison  would  be  rejected  by  any 
fair-minded  investigator  as  unworthy  of  a  moment's  consideration. 
He  would  very  properly  insist  that,  in  order  to  ascertain  the 
improvement  in  the  laborer's  condition  from  1850  to  1880,  we 
must  compare  the  condition  of  the  same  laborers.  The  wages 
and  social  condition  of  the  Chinamen  and  Italians  might  have 
improved  a  hundred  per  cent.,  and  still  be  no  better  in  1890  than 
were  those  of  the  American  laborers  in  1850.  The  only  way  to 
ascertain  whether  or  not,  or  to  what  extent,  the  laborer's  con- 
dition has  improved,  is  to  compare  the  condition  of  the  American 
laborers  in  1890  with  their  condition  in  1850,  and  also  the  con- 
dition of  the  Chinese  and  Italian  laborers  in  1890,  not  with  that  of 
the  Americans,  but  with  their  own  condition  in  1850. 

Now  this  is  precisely  what  has  taken  place  in  New  England 
factory  life.  The  operatives  of  forty  years  ago  were  mainly 
composed  of  native  Americans,  mostly  children  of  the  New 
England  farmers.  During  this  period  the  industrial  history  of 


3 $6  EVOLUTION  OF  INDUSTRIES. 

America  has  been  unlike  that  of  any  other  country  in  the  world. 
Owing  to  our  higher  wage-level  and  the  protection  of  our  home 
market,  manufacture  and  a  variety  of  occupations  increased  much 
faster  than  did  our  native  population.  The  consequence  was  a 
continuous  stream  of  emigration  to  this  country.  The  introduc- 
tion of  every  new  industry  of  a  higher  order  naturally  drew  to  it 
the  more  intelligent  and  characterful  portion  of  the  laborers  from 
the  grade  below,  their  places  being  filled  by  the  less  competent. 
By  this  means  there  was  an  almost  constant  movement  of  laborers 
from  the  more  simple  to  the  more  complex  and  artistic  industries, 
and  the  less  advanced  laborers  from  other  countries  taking  the 
simpler  occupations.  In  the  cotton  industry,  for  example,  as 
Americans  moved  up  into  the  position  of  overseers,  managers,  or 
merchants,  their  places  were  taken  first  by  English,  next  by  Irish, 
and  last  by  French  Canadian  operatives,  so  that  to-day  an  Ameri- 
can is  scarcely  to  be  found  in  the  cotton  factories  of  New  England, 
except  in  the  superior  positions,  many  of  the  various  grades 
of  overseers,  machinists,  etc.,  being  English  or  English-Irish. 
Therefore,  if  we  compare  the  wages  and  social  conditions  of  the 
spinner  and  weaver  in  New  England  cotton  factories  to-day  with 
those  of  1840,  we  are  not  dealing  with  the  same  class  of  people 
at  all,  nor  even  with  the  effects  of  the  same  civilization.  The 
French  or  Irish  operative  may  not  be  very  much  better  off  to-day 
than  was  the  American  who  occupied  the  same  position  forty  years 
ago,  and  yet  his  condition  may  have  been  improved  several  hun- 
dred per  cent.  The  same  is  true  of  the  miners  of  Pennsylvania, 
who  to-day  are  largely  composed  of  the  poorest  laborers  from 
Continental  Europe. 

In  order,  therefore,  to  ascertain  the  progress  that  has  taken 
place  in  the  industrial  and  social  condition  of  these  classes  of 
operatives,  we  must  not  compare  their  present  condition  with  that 
of  the  American  forty  years  ago,  but  with  their  own  condition  at 
that  time.  If  we  compare  the  condition  of  small  merchants  in 
New  England  to-day  with  that  of  factory  operatives  of  1850,  or 
compare  the  condition  of  the  English,  Irish,  and  French  Cana- 
dian operatives  in  New  England  and  the  miners  of  Pennsylvania 
to-day  with  what  it  was  in  England,  Ireland,  Canada,  Scandi- 
navia, Bohemia,  or  Russia  thirty  or  forty  years  ago,  the  improve- 
ment will  appear  as  marked  as  in  that  of  any  other  class  in  the 


EFFECT   UPON  OTHER   COUNTRIES.  357 

community.  To  overlook  this  is  entirely  to  misapprehend  the 
phenomena  under  consideration.  These  facts  are  not  referred 
to  here  to  give  a  rose-colored  tint  to  the  condition  of  these 
laborers  ;  on  the  contrary,  I  regard  their  condition,  in  many 
instances,  as  not  only  a  disgrace  but  as  a  serious  danger  to  our 
civilization.1  They  are  referred  to,  only  to  emphasize  the  mistake 
of  ignoring  them  in  considering  the  effect  of  modern  industrial 
influences  upon  the  social  condition  of  the  laborers  ;  because  it  is 
only  by  recognizing  all  the  facts  in  the  case,  that  we  can  form  any 
true  estimate  of  the  beneficial  or  other  effects  of  any  industrial 
policy.  Hence  it  may  properly  be  said  that  to  the  extent  that 
protection  has  promoted  the  growth  of  manufacturing  industries 
it  has  directly  and  indirectly  improved  the  social  condition  and 
raised  the  wages  of  all  classes  of  laborers  in  this  country  com- 
mensurately  with  the  advance  of  the  community. 

SECTION  IX. —  The  Influence  of  Protection  in  the  Most  Ad- 
vanced Countries  upon  the  Progress  of  the  Less  Advanced. 

Perhaps  the  most  specious  argument  employed  in  favor  of  a 
free-trade  policy  is  that  it  is  cosmopolitan  in  its  character,  that 
it  rises  above  local,  sectional,  or  even  national  considerations, 
treating  all  mankind  as  brethren,  while  protection  is  pre-emi- 
nently a  local  policy  that  endeavors  to  discriminate  against  the 
people  of  all  other  countries  in  favor  of  its  own.  It  may  be  ad- 
mitted that  any  policy  which  promotes  the  welfare  of  one  country 
at  the  expense  of  another  is  essentially  unphilosophic,  and  that 
the  best  policy  for  any  country  is  the  one  whose  beneficial  effects 
are  most  universal.  The  economic  character  of  a  public  policy, 
however,  should  never  be  judged  by  its  immediate  or  temporary 
effect,  but  always  by  its  permanent  and  ultimate  influences. 
Measured  by  this  standard,  it  is  not  difficult  to  show  that  the 
protective  principle  as  here  laid  down  is  pre-eminently  cos- 
mopolitan in  its  character. 

It  may  be  regarded  as  a  self-evident  proposition  that  he  who 
would  help  others  must  first  develop  the  best  in  himself,  since  not 
to  develop  his  own  capacities  is  to  limit  his  usefulness.  The  most 
altruistic  effects  are  usually  produced  by  efforts  to  broaden  and 

1  See  "  Wealth  and  Progress,"  pp.  365-373. 


358  SELF-IMPROVEMENT  THE  FIRST  STEP. 

elevate  our  own  social  life,  because  every  addition  to  our  own 
life  embraces  more  of  the  efforts,  interests,  and  well-being  of 
others.  In  proportion  as  the  interests  of  others  becomes  iden- 
tified with  our  own,  will  our  efforts  be  directed  to  promoting 
their  welfare  as  much  as  our  own.  In  other  words,  in  proportion 
as  we  become  socially  interdependent  do  our  efforts  become 
altruistic  and  cosmopolitan.  Indeed,  it  is  only  by  increasing 
man's  interdependence  upon  his  fellow-man  that  the  solidarity 
of  the  human  race  will  ever  be  realized,  and  the  altruism  "which 
shall  make  every  man's  happiness  include  that  of  all  mankind 
become  an  established  fact. 

This  is  as  true  of  nations  as  of  individuals.  The  nation  which 
would  contribute  most  to  the  advancement  of  human  progress 
must  develop  its  own  civilization.  We  might  as  well  expect  the 
weak  to  carry  the  strong,  as  barbarism  to  aid  civilization.  That 
nation  which  most  completely  develops  its  own  industrial  and 
social  possibilities,  creates  the  most  improved  methods  of  pro- 
duction. In  this  way  it  is  not  only  able  to  obtain  its  own 
wealth  cheap,  but  ultimately  to  produce  many  commodities  at  less 
cost  than  can  be  produced  by  the  cheap  labor  of  less  civilized 
countries.  Upon  the  principle  that  whatever  undersells  succeeds, 
the  less  civilized  countries  are  compelled  to  adopt  the  superior 
methods.  Thus  the  benefits  of  inventions  which  result  from  the 
development  of  a  higher  civilization  are  automatically  transferred 
to  the  lower,  and  the  socializing  influences  of  improved  methods 
of  production  become  cosmopolitan. 

This  is  clearly  demonstrated  by  the  adoption  of  various  kinds 
of  American  machinery  abroad,  without  the  use  of  which  many 
European  products  would  have  been  undersold  by  ours.  Nor  are 
the  benefits  which  more  highly  civilized  countries  confer  upon 
the  lower,  limited  to  what  is  forced  upon  them  by  competition  in 
commodities  which  they  both  produce.  A  still  greater  benefit 
arises  from  the  introduction  of  new  commodities,  which  more 
diversified  tastes  and  more  complex  social  life  of  the  more 
highly  civilized  country  bring  into  existence.  As  a  demand  for 
new  commodities  increases,  labor-saving  appliances  are  invented 
to  reduce  the  cost  of  their  production,  until  they  can  be  sold  in 
foreign  countries  at  merely  a  nominal  price.  In  this  case  the 
products  of  a  higher  civilization  are  not  competing  with  those 


ECONOMIC  SELECTION'  OF  INDUSTRIES.  359 

of  a  lower,  but  new  products  are  being  introduced  into  less 
civilized  countries  ;  this  stimulates  a  taste  for  articles  they  have 
not  hitherto  used,  thereby  introducing  new  elements  into  their 
social  life.  Just  as  fast  as  a  demand  for  such  new  commodities 
is  created,  the  social  life  is  diversified,  the  standard  of  living 
is  raised,  wages  are  increased,  and  a  market  basis  for  new 
industries  is  established.  This  is  what  the  diversified  tastes 
and  inventive  genius  of  America  have  been  doing  in  Europe 
and  South  America  to  an  increasing  extent  during  the  last 
twenty  years. 

Another  advantage  of  a  protective  policy  is  that  it  tends  to 
make  the  economic  selection  of  industries  possible,  thereby 
promoting  the  only  conditions  upon  which  free  trade  between 
nations  can  ever  take  place  without  injury  to  the  higher-wage 
country. 

The  postulate,  so  frequently  emphasized  by  the  advocates  of 
laissez  faire,  that  nations,  like  individuals,  should  be  enabled  to 
adopt  those  industries  for  which  they  are  best  fitted,  is  unexcep- 
tionable. But  in  order  to  obtain  this  result,  it  is  necessary  to 
secure  opportunities  for  developing  the  economic  possibilities 
of  the  people.  It  should  ever  be  remembered  that  the  most  effec- 
tive economic  force  in  society  is  human  invention  and  not 
natural  resources,  as  is  commonly  assumed.  For  reasons  already 
explained,  labor-saving  inventions  can  be  developed  only  under 
the  influence  of  socializing  and  diversified  industries.  These 
conditions,  without  which  a  truly  economic  selection  of  industries 
is  impossible,  are  what  protection  furnishes. 

Although  it  may  be  possible  for  these  conditions  to  exist  with- 
out protection,  history  does  not  furnish  an  instance  where  such  a 
thing  has  occurred.  The  way  in  which  protection  promotes 
this  is  easy  to  understand.  In  the  first  place,  by  raising  the 
basis  of  international  competition  to  the  plane  of  the  higher  wage- 
level,  it  prevents  the  lower-paid  labor  of  one  country  from  being 
made  the  means  of  checking  the  growth  of  manufacturing  in- 
dustries in  another.  This  secures  a  home  market  for  domestic 
products  and  furnishes  an  economic  basis  for  a  diversification 
of  socializing  industries  in  the  higher  wage-country.  The  greatest 
incentive  is  thus  furnished  for  developing  the  most  economic 
methods  of  production.  With  concentrated  capital,  the  use  of 


360  PROTECTION  PROMOTES  FREE  TRADE. 

highly  perfected  machinery,  and  the  development  of  specialized 
industries,  a  truly  economic  selection  of  industries  becomes  pos- 
sible. The  conditions  will  then  exist  for  determining  what  things 
a  nation  can  most  economically  produce,  by  reason  of  its  pe- 
culiar character,  natural  resources,  and  civilization. 

When  this  point  is  reached,  protection  will  be  economically 
necessary  only  to  the  extent  of  preventing  the  substitution  of 
simple  for  complex  industries.  It  will  then  be  to  the  advantage 
not  only  of  that  nation,  but  of  the  world,  that  it  should  devote 
its  productive  energies  to  those  industries  for  which  it  has  devel- 
oped the  best  capacity,  and  to  relinquish  all  others  to  countries 
for  which  they  are  better  adapted.  Just  in  proportion  as  this 
takes  place,,  protection  becomes  unnecessary — provided,  however, 
that  this  change  does  not  involve  the  substitution  of  simple  for  com- 
plex industries.  For  example,  if  America  becomes  highly  profi- 
cient in  the  manufacture  of  jewelry  and  relatively  deficient  in 
the  manufacture  of  silk,  capital  will  naturally  go  to  the  former 
and  away  from  the  latter  industry.  Foreign  silk  might  then  be 
admitted  free  of  duty  without  injury  to  the  American  laborer. 
It  will  thus  be  seen  that  protection  (as  here  considered)  not  only 
prevents  a  less  civilized  country  from  checking  the  progress  of  a 
higher,  but  by  promoting  the  substitution  of  economic  for  natural 
(blind)  selection -of  industries,  it  tends  ultimately  to  make  a  mu- 
tually advantageous  free  trade  possible. 

Thus  a  protective  policy  is  not  necessarily  narrow  and  ex- 
clusive, but,  when  philosophically  applied,  is  a  most  truly 
cosmopolitan  doctrine  of  industrial  relations,  because  it  tends 
first,  to  develop  home  industry  and  civilization  without  injuring 
others,  and  second,  to  automatically  extend  these  beneficial 
results  to  all  mankind. 

Here,  then,  we  have  a  truly  philosophic  and  strictly  economic 
basis  for  applying  the  protective  principle  both  to  foreign  and 
domestic  industrial  relations.     It  consists  in  securing  the  present 
and  promoting  the  future  opportunities  (incentive-creating  con- 
ditions) for  developing  the  highest  industrial  and  social  possibili- 
ties of  a  people,  and  may  be  briefly  summarized  thus  : 
Foreign — Applied   to    the   industrial   intercourse   of   nations,   a 
true  protective  policy  is  to  prevent  the  products  of  the  more 
advanced  countries  from  being  undersold  by  the  products 


PROTECTIVE  PRINCIPLE  APPLIED.  361 

of  less  civilized  countries,  through  the  use  of  lower  paid 
labor  ;  thereby  securing  opportunities  for  developing  the 
best  methods  of  production  afforded  by  the  larger  consump- 
tion and  higher  social  life  of  the  more  advanced  country. 

Domestic — Applied  to  the  relations  of  individuals  and  classes 
within  the  nation,  this  policy  is  one  to  guarantee  the  safety 
of  persons  and  property  with  the  maximum  amount  of  indi- 
vidual freedom,  and  to  secure  the  education,  leisure,  and 
other  like  conditions,  which  tend  to  develop  the  best  physical, 
intellectual,  and  moral  qualities  of  the  individual  citizen. 
The  scientific  application  of  this  principle  to  the  various  phases 

of  industrial,   social,   and  political  life  is  the  true  function  of 

statesmanship. 


CHAPTER   IV. 
THE  PRINCIPLES  OF  ECONOMIC  TAXATION. 

SECTION  I. —  The  Economic  Basis  of  Equitable  Taxation. 

IN  the  preceding  chapter,  taxation  was  discussed  solely  as  an 
instrument  of  industrial  protection  and  national  development. 
It  is  now  proposed  to  consider  taxation  as  a  means  of  obtaining 
public  revenue.  In  order  to  determine  how  to  obtain  the  neces- 
sary revenue  with  the  least  expense  and  the  greatest  equity  to  all 
classes,  it  is  necessary  briefly  to  consider  :  (i)  the  principle  which 
should  determine  the  individual's  contribution  to  the  state  ;  (2) 
the  source  from  which  the  contribution  should  be  drawn. 

(i)  The  principle  which  should  govern  individual  service  to 
the  state  is  a  much  debated  one.  It  has  been  contended  by 
some  that  a  tax  should  be  proportionate  to  the  degree  of  pro- 
tection furnished  by  the  state.  According  to  this  view,  if  one 
class  of  property  is  exposed  to  more  danger  than  another,  its 
owners  should  pay  a  proportionately  higher  tax.  The  objection 
to  this  is  that  it  would  place  the  greatest  burden  upon  those  least 
able  to  bear  it.  Assuming  taxes  to  stay  where  they  are  put, 
under  this  system  the  owners  of  coal  mines,  stone  quarries, 
and  land  would  be  almost  exempt  from  taxation, -while  those 
engaged  in  manufacture  and  commerce  would  have  to  pay  very 
high  taxes.  Moreover,  the  very  poor  and  helpless,  who  most 
frequently  need  the  aid  of  the  state  in  many  forms  and  are  least 
able  to  contribute,  would  be  the  most  heavily  taxed.  Since  the 
function  of  government  is  to  protect  and  promote  opportunities 
for  increasing  the  well-being  of  the  individual,  the  most  equitable 
basis  on  which  the  individual  can  be  called  upon  to  serve  the 
state,  is  evidently  his  ability  to  contribute  without  injury  to  him- 

362 


PROPERTY   TAX.  363 

self.  This  idea  is  more  or  less  generally  recognized,  as  is  shown 
in  the  frequent  demand  to  have  a  heavier  tax  imposed  upon  com- 
modities consumed  by  the  rich  than  upon  those  consumed  by  the 
poor.  And  the  frequent  demand  for  taxing  incomes  above  a 
certain  amount,  the  exemption  of  wages  and  small  homesteads, — 
all  of  which  are  efforts  to  make  the  rich  contribute  more  to  the 
public  revenue  than  the  poor,  upon  the  principle  that  they  are 
more  able  to  contribute. 

(2)  From  what  source  should  this  tribute  to  the  state  be  drawn, 
or  what  is  the  best  measure  of  an  individual's  capacity  to  pay 
without  injury  to  his  own  well-being  ?  It  is  commonly  assumed 
that  the  ability  of  a  citizen  to  pay  a  tax  is  proportionate  to  the 
property  he  owns  ;  this,  however,  is  far  from  being  correct.  For 
instance,  one  may  legally  own  a  large  amount  of  property  which 
is  so  highly  mortgaged  as  to  make  his  ownership  merely  nominal. 
To  tax  such  a  man  in  proportion  to  his  property  would  impover- 
ish him,  while  the  effect  of  a  similar  tax  upon  his  neighbor  whose 
property  is  free  from  mortgage  would  be  relatively  slight.  One 
manufacturer  with  a  large  plant  may,  through  a  mere  change  of 
fashion  or  other  social  cause,  be  working  at  a  loss,  while  another, 
with  a  similar  plant,  but  who  is  unaffected  by  the  fashion,  may  be 
making  large  profits. 

Clearly,  to  tax  the  property  of  these  two  at  the  same  rate  would 
be  to  deprive  the  former  of  his  means  of  getting  a  living,  while 
from  the  latter  it  would  take  but  a  fraction  of  his  surplus,  and  hence 
would  in  no  way  impair  his  present  industrial  or  social  status. 
Manifestly  then  a  uniform  tax  upon  product  or  property  would 
not  fall  with  equal  weight  upon  all.  In  other  words,  the  owner- 
ship of  property  does  not  constitute  a  correct  measure  of  the^in- 
dividual's  ability  to  contribute  to  the  public  revenue.  There  is 
but  one  source  from  which  wealth  can  be  taken  with  the  certainty 
that  it  will  not  inflict  a  burden,  and  that  is,  surplus  income,  which 
embraces  all  the  forms  of  rent,  interest,  and  profit. 

The  reason  this  form  of  income  can  be  taxed  with  the  least 
burden  to  its  owner  is  that  it  does  not  enter  into  the  necessary 
cost  of  his  living.  The  cost  of  the  social  well-being  of  all  who 
participate  in  production  being  a  part  of  the  necessary  cost  of 
production  is  represented  by  wages  and  salaries,  the  surplus  is 
what  remains  after  these  costs  are  defrayed.  Consequently,  ai- 


364  MOBILITY  OF   TAXES. 

though  to  pay  a  tax  from  one's  surplus  is  to  lessen  one's  wealth, 
it  does  not  intrench  upon  the  normal  means  of  social  well-being, 
and  therefore  inflicts  the  minimum  amount  of  economic  and 
social  inconvenience.  Clearly  then,  the  extent  of  the  surplus  in- 
come is  the  measure  of  an  individual's  ability  to  contribute  to 
the  public  revenue  without  injury  to  his  own  well-being.  How 
then  can  taxes  be  levied  so  as  to  be  drawn  from  the  economic 
surplus  of  the  community  without  disturbing  industrial  relations  ? 
This  would  be  a  very  simple  problem  if  the  taxes  would  stay 
where  they  are  put  and  were  paid  by  those  upon  whom  they 
are  levied.  But  this  is  just  what  does  not  occur.  In  order 
therefore,  to  answer  this  question,  it  is  necessary  to  consider  the 
economic  mobility  of  taxes. 

SECTION  II. —  The  Mobility  of  Taxes  and  their  Relation  to 

Wages. 

To  ascertain  how  taxes  travel  from  one  to  another  class  in  the 
community,  and  to  find  by  whom  they  are  ultimately  paid,  we 
have  only  to  follow  a  tax  from  where  it  is  levied  to  the  place 
where  it  cannot  be  further  shifted.  For  illustration,  let  us  sup- 
pose that  a  tax  is  laid  upon  land  ;  the  land  being  the  source  of  all 
raw  material,  such  a  tax  would  affect  all  commodities  in  the  first 
stage  of  their  production.  Upon  the  principle  that  a  commodity 
cannot  be  continuously  furnished  for  less  than  it  costs,  the  tax 
will  be  added  to  the  price  of  the  product  in  the  same  way  as 
wages  and  other  items,  and  must  be  paid  by  the  purchaser.  If 
the  article  is  wheat,  the  tax  is  thus  transferred  from  the  far- 
mer to  the  miller.  The  tax  being  an  inevitable  item  in  the  cost 
of  the  flour  to  the  miller  it  is  transferred  by  him  to  the  wholesale 
merchant,  and  by  him  to  the  retail  grocer,  who  in  turn  passes  it 
on  to  the  consumer.  Manifestly  unless  the  consumer  can  transfer 
the  tax  to  some  one  else,  he  must  pay  it,  because  it  is  included  in 
the  price  of  his  commodity  in  addition  to  all  necessary  costs. 

This  brings  us  to  the  most  critical  point  of  the  subject.  All 
writers  of  any  standing  recognize  the  mobility  of  the  tax  from  the 
raw  material  to  the  consumer  of  the  finished  product.  But  it  is 
generally  assumed  that  the  tax  cannot  be  made  to  travel  any 
further  than  the  commodity  in  whose  cost  it  is  an  item,  and  con- 
sequently whoever  consumes  the  article  ultimately  pays  the  tax. 


RELATION  OF   TAXES   TO    WAGES.  365 

If  we  examine  the  matter  more  closely,  however,  we  shall  see  that 
this  conclusion  is  only  partially  correct.  Whether  or  not  those 
who  consume  the  wheat  pay  the  tax,  will  depend  upon  whether  its 
consumption  forms  an  item  in  any  further  series  of  production. 
Suppose,  for  instance,  the  wheat  is  consumed  by  horses  that  are 
employed  in  a  brick-yard.  The  wheat  in  that  case  at  once  be- 
comes an  item  in  the  cost  of  using  the  horse,  which  in  turn  is  an 
item  in  the  cost  of  the  brick.  This  point  is  very  important 
here,  because  it  has  a  direct  bearing  upon  whether  or  not  the 
laborer  ultimately  pays  the  tax  included  in  the  price  of  the  com- 
modities he  consumes. 

The  laborer,  it  should  be  remembered,  exercises  two  functions 
One  is  social,  and  the  other  economic.  As  a  social  factor  he  is 
a  consumer,  and  constitutes  an  important  item  both  in  ^civilization 
and  in  the  market.  As  an  economic  factor,  however,  he  is 
simply  a  productive  force.  In  this  capacity  he  affects  the  price 
of  the  product  in  precisely  the  same  way  as  does  any  other  force 
so  employed,  whether  it  be  through  the  instrumentality  of  ani- 
mals or  machinery.  Economically  they  all  affect  the  cost  and 
price  of  the  product  in  the  same  way,  namely,  through  the  cost 
of  procuring  them.  The  cost  of  any  productive  instrument  is 
what  is  consumed  in  maintaining  its  productive  efficiency,  and 
that  cost  must  be  replenished  from  the  price  of  the  product. 
Now,  the  cost  of  maintaining  the  productive  efficiency  of  the 
laborer  is  his  living.  Whatever  is  necessary  to  that  is  a  part  of 
the  price  of  his  labor — wages, — and  therefore  becomes  a  neces- 
sary item  in  the  cost  of  whatever  he  produces.  Clearly,  there- 
fore, the  more  his  living  costs,  the  more  expensive  will  be  his 
labor.  If  his  cost  of  living  could  be  reduced,  either  by  inducing 
him  to  consume  fewer  commodities  or  by  lessening  the  cost  of 
those  he  does  consume,  his  wages  could  easily  be  lowered.  The 
price  of  labor  in  Asia  and  continental  Europe  is  less  than  in 
America  because  labor  there  costs  less.1 

For  the  same  reason  that  the  price  of  labor  would  fall  if  the 
cost  of  the  laborer's  living  could  be  reduced,  it  must  and  will 
rise  if  the  cost  of  that  living  is  increased.  Nor  does  it  matter 
whether  the  increased  cost  is  due  to  an  increase  in  the  amount  of 

'"Wealth  and  Progress,"  Part  II.,  chap,  vii.,  sec.  i.,  pp.  162-167;  also 
Brassey's  "  Work  and  Wages,"  pp.  88,  89,  94-96. 


366  THE  LABORER   SHIFTS    THE    TAX. 

wealth  he  consumes  or  to  a  rise  in  the  price  of  that  wealth.  Thus, 
during  the  American  war,  when  the  price  of  commodities  was 
greatly  increased  through  the  inflation  of  the  currency,  wages  soon 
moved  in  the  same  direction  and  fell  again  when  the  prices  were 
lowered — as,  indeed,  they  have  throughout  all  history.1  Clearly, 
therefore,  if  the  price  of  a  laborer's  flour,  sugar,  coffee,  clothing, 
and  the  like  is  increased  by  a  tax,  the  result  will  be  economically 
the  same  as  if  the  higher  price  were  due  to  the  payment  of  higher 
wages  to  agricultural  laborers,  a  rise  in  the  rate  of  transportation, 
a  failure  of  crops,  or  any  other  cause  ;  and  if  it  becomes  perma- 
nent it  will  result  in  his  demanding  and  obtaining  higher  nominal 
wages.  The  laborer  would  not  gain  any  thing  in  well-being  by 
such  a  rise  of  wages,  but  it  would  be  necessary  in  order  to  furnish 
him  the  amount  of  well-being  to  which  he  had  become  habitually 
accustomed,  and  without  which  he  would  refuse  to  work.  In  this 
way,  therefore,  the  tax  is  transferred  from  the  laborer  to  the  em- 
ployer.2 What  is  true  of  the  laborer  is  equally  true  of  all  who 
receive  stipulated  incomes. 

To  whom,  then,  it  may  be  asked,  does  the  employer  transfei- 
the  tax  ?  Here  the  answer  is  as  before — to  whomsoever  he  can. 
And  if  he  cannot  transfer  it  to  anybody,  he  must  pay  it  himself. 
He  will  of  course  utilize  all  the  economic  forces  at  his  command 
to  pass  the  tax  to  somebody  else.  He  may  first  try  to  make  the 

1  "  Wealth  and  Progress,"  pp.  148-156;  also  McCulloch's  "Principles  of 
Political  Economy,"  p.  181. 

3  This  fact  was  recognized  by  the  early  English  writers,  although,  like  many 
others  of  their  best  suggestions,  it  has  been  subsequently  treated  rather  as  an 
incidental  than  a  primary  fact.  Adam  Smith  says  :  "  Such  a  tax  must  there- 
fore occasion  a  rise  in  the  wages  of  labor  proportionable  to  this  rise  of  price.  It 
is  thus  that  a  tax  upon  the  necessaries  of  life  operates  in  exactly  the  same  man- 
ner as  a  direct  tax  upon  the  wages  of  labor.  The  laborer,  though  he  may  pay 
it  out  of  his  hand,  cannot,  for  any  considerable  time  at  least,  be  properly  said  to 
even  advance  it.  It  must  always,  in  the  long  run,  be  advanced  to  him  by  his 
immediate  employer  in  the  advanced  rate  of  wages." — "  Wealth  of  Nations," 
Book  V.,  chap,  ii.,  article  iv.,  pp.  691  and  692  ;  see  also  pp.  686,  693,  694,  and 
704.  Ricardo  says  :  "  There  can  be  no  permanent  fall  of  wages,  but  in  con- 
sequence of  a  fall  of  the  necessaries  on  which  wages  are  expended." — "  Political 
Economy  and  Taxation,"  p.  75.  "A  tax,  however,  on  raw  produce  and  on  the 
necessaries  of  the  laborer,  would  have  another  effect — it  would  raise  wages." — 
find.,  p.  93.  "  The  effect  of  a  tax  on  wages  would  be  to  raise  wages  by  a  sum 
at  least  equal  to  the  tax,  and  would  be  finally,  if  not  immediately,  paid  by  the 
employer  of  labor." — Ibid.,  p.  133  ;  see  also  pp.  129,  136,  and  141. 


TAXES  DRAWN  FROM    THE   SURPLUS.  367 

laborer  pay  it  by  refusing  to  increase  wages,  but  here  he  will  be 
met  by  the  laborer's  refusal  to  work,  and,  should  he  try  to  put  it 
on  the  consumer  in  higher  prices,  he  will  only  be  repeating  the 
circle,  because  the  increase  in  the  price  will  act  as  before  upon 
wages,  and  he  will  have  to  pay  out  to  the  laborer  what  he  has 
thus  exacted  from  the  consumer.  In  the  last  analysis,  therefore, 
the  only  source  from  which  the  employer  can  pay  the  tax  is  his 
surplus  or  profit.1  That  being,  as  we  saw  in  the  last  section,  the- 
true  measure  of  the  individual's  ability  to  contribute  to  the  public 
revenue  without  curtailing  his  own  well-being,  it  is  the  most 
equitable  basis  of  taxation.  This  brings  us  to  the  question  how 
the  employer  replenishes  his  surplus  from  which  taxes  are  finally 
drawn. 

SECTION  III. —  The  Ultimate  Effect  of  Taxation  upon  Profits 
and  the  General  Wealth  of  the  Community. 

If  the  conclusion  reached  in  the  last  section  is  correct,  and 
taxes  finally  come  out  of  the  surplus  product,  then  it  follows  that 
either  profits  diminish  as  taxes  increase,  or  that  the  employer  has 
some  means  of  replenishing  his  surplus.  We  know  from  ex- 
perience that  the  aggregate  amount  of  wealth  taken  in  taxes  tends 
to  increase  as  society  advances,  and  it  is  equally  certain  that  the 
aggregate  profits  do  not  diminish.  On  the  contrary,  while  there 
is  a  tendency  to  minimize  the  rate  of  profit  per  unit  of  product, 
the  aggregate  amount  of  surplus  product  in  various  forms  un- 
questionably tends  to  increase.  Clearly,  then,  there  must  be 
some  means  by  which  the  employer  can  replenish  his  surplus 
when  thus  drained  by  taxation.  How  does  he  do  it  ? 

We  have  already  seen  that  he  cannot  take  it  from  the  consumer 

1  Accordingly,  any  extra  pressure  of  taxation  is  always  first  felt  by  the  business 
portion  of  the  community  in  the  diminution  of  profits.  Hence  we  always 
find  the  commercial  class  the  first  to  protest  against  excessive  taxation.  For 
this  reason  no  representative  government,  and  few  despotic  ones,  could  suddenly 
increase  the  taxation  of  the  country  by  an  amount  equal  to  the  aggregate  profits 
of  the  community,  because  such  an  act  would  practically  be  a  seizure  of  the  total 
surplus  revenue,  which  would,  in  all  probability,  cause  a  revolution  that  would 
destroy  the  government.  That  is  why,  whenever  an  exceptionally  large  amount 
is  to  be  suddenly  raised  by  taxes,  it  invariably  takes  the  form  of  a  loan  for  a  long 
period,  thus  extending  the  ultimate  payment  of  a  portion  of  the  tax  to  future 
generations. 


368  HOW   THE   SURPLUS  IS  REPLENISHED. 

by  raising  prices,  nor  from  the  laborer  by  reducing  wages.  That 
he  does  not  take  it  from  either  of  these  sources  is  further  shown 
by  the  fact  that  contemporaneously  with  the  increase  of  taxation, 
real  wages  have  risen  and  the  price  of  commodities  has  fallen. 
Manifestly  then,  the  only  way  the  producer's  surplus  can  be 
replenished  is  by  a  new  draft  upon  nature  through  increased 
production.  Nor  will  it  be  difficult  to  see  how  this  takes  place, 
if  we  bear  in  mind  the  law  of  prices  and  surplus,  previously 
presented. 

Under  this  law,  whenever  productive  methods  are  employed 
by  which  nature  yields  a  greater  amount  of  wealth  for  the  same 
effort,  all  other  demands  upon  the  product  being  fixed  amounts, 
the  whole  gain  naturally  flows  to  the  contingent  surplus  of  those 
who  use  the  new  methods.  Consequently,  all  increase  in  the 
wealth  of  any  stipulated  income  class  in  the  community,  whether 
it  be  through  lowering  prices  or  increasing  wages,  must  be  drawn 
from  the  contingent  surplus  of  the  producers.  For  instance 
when,  by  the  adoption  of  more  productive  instruments,  the  sur- 
plus of  the  most  successful  producers  increases,  there  arises  a 
greater  inducement  to  invest  more  capital  in  the  enterprise,  and 
thus  increase  production.  In  order  to  insure  the  sale  of  this 
increased  production,  it  is  offered  at  a  lower  price.  If  this 
reduction  be  ten  per  cent.,  the  uniform  price  of  the  total  product 
in  that  market  will  fall  ten  per  cent.  Manifestly  this  fall  comes 
directly  out  of  the  profits  of  the  producers,  and  all  who  were 
previously  making  less  than  ten  per  cent,  profit  will  now  have  to 
leave  the  business  or  adopt  the  methods  by  which  the  reduction 
was  brought  about.  Thus  the  additional  wealth  resulting  from 
the  increased  productive  efficiency  first  flows  to  the  economic 
surplus  of  those  producing  the  improvement,  and  then  by  com- 
petition, is  transferred  from  the  producers'  surplus  to  the  com- 
munity in  lower  prices. 

An  increase  of  wages  takes  place  upon  the  same  general 
principles,  and  with  substantially  the  same  result,  but  it  comes 
in  a  somewhat  different  way.  A  reduction  in  prices  is  a  distri- 
bution of  the  surplus  through  the  aggressive  action  of  employers. 
An  increase  of  wages  is  a  distribution  of  the  surplus  by  the 
aggressive  action  of  laborers.  As  already  explained,  the  enforced 
transfer  from  profits  to  wages  compels  the  producer  either  to 


TAXES  INCREASE  PRODUCTION.  369 

work  without  profit,  or  perhaps  at  a  loss,  or  to  adopt  some 
labor-saving  means  by  which  more  can  be  produced  at  the  same 
cost.  Thus  the  laborer's  encroachment  upon  the  capitalist's 
surplus  forces  him,  under  penalty  of  poverty,  to  make  nature 
yield  more  wealth  for  the  same  effort,  thus  replenishing  what 
the  laborer  has  taken  from  him,  and  making  the  community 
absolutely  richer  by  the  amount  to  which  wages  have  been 
increased.1 

What  is  true  of  wages  is  true  of  any  other  form  of  increased 
consumption  which  adds  to  the  cost  of  production.  Taxation  is 
precisely  of  this  character.  If  10  per  cent,  is  added  to  the  price 
of  wheat  or  cotton  by  a  tax,  the  mobility  and  ultimate  economic 
effect  upon  profits  and  production  will  be  identically  the  same  as 
if  10  per  cent,  had  been  added  to  the  cost  by  an  increase  of 
wages.  The  same  economic  power  which  would  enable  the 
farmer  to  add  to  the  price  of  wheat  an  increase  m  the  farm 
laborers'  wages,  and  the  miller,  wholesale  and  retail  merchant, 
each  in  turn  to  add  it  to  the  price  of  flour,  and  the  mechanic, 
who  consumes  the  flour,  to  add  it  to  his  wages,  and  thus  ultimately 
take  it  from  the  employers'  profits,  will  enable  them  to  do  pre- 
cisely the  same  by  a  tax  which  increases  the  cost  of  production 
in  the  same  way,  no  matter  at  what  stage  of  the  process  it  is 
levied.  Taxation,  like  wages,  is  simply  a  form  of  consumption, 
and  hence  exercises  the  same  influence  upon  profits  and  the 
general  wealth  of  the  community  as  any  other  form  of  consump- 
tion— namely,  to  increase  the  aggregate  production,  which  added 
increment  goes  to  replenish  the  source  from  which  the  tax  was 
last  taken — the  employer's  profit. 

It  will  thus  be  seen  that  the  entrepreneur  does  not  pay  the 
tax,  in  the  sense  of  being  permanently  the  poorer  by  it,  any  more 
than  does  the  farmer,  miller,  merchant,  or  laborer.  They  each 
shift  it  on  to  the  next  purchaser  of  the  product  into  whose  cost 
it  has  entered.  In  the  laborer's  case,  having  become  a  part  of 
the  cost  of  his  labor,  it  is  charged  to  the  employer  in  the  same 
way.  The  employer,  being  unable  to  charge  it  upon  any  class 
of  his  fellow-men,  is  forced,  by  the  impulse  of  self-interest,  to 
exact  it  from  nature,  which  he  finally  does  in  the  form  of  a  larger 
product.  Therefore  Professor  Sumner's  statement  that  "  every 

1  Part  II.,  chap,  v.,  sec.  iii.     Also  "  Wealth  and  Progress,"  pp.  31,  32. 
24 


37O        IMPORTANCE   OP   TAXATION  EXAGGERATED. 

tax  is  an  evil  "  is  essentially  false.     A  tax  is  not  necessarily  an 
evil  any  more  than  wages  or  any  other  form  of  consumption.1 

It  will  thus  be  seen  that  taxation  properly  occupies  no  such 
important  position  in  economics  as  is  usually  ascribed  to  it.  If 
the  total  consumption  upon  which  the  $300,000,000  of  taxes  in 
this  country  is  expended  were  abolished  to-morrow,  instead  of 
adding  to  our  wealth,  it  would  create  an  industrial  depression  in 
this  and  probably  in  several  other  countries,  until,  by  enforced 
idleness  and  bankruptcy,  production  could  be  readjusted  on  the 
narrower  basis  to  conform  to  the  diminished  consumption  or 
demand.  Were  this  relation  of  consumption  to  production  prop- 
erly understood,  taxation  would  cease  to  be  the  hobgoblin  of 
public  affairs.  The  important  question  regarding  taxation  is  not 
as  to  who  shall  pay  the  taxes,  nor  how  much  they  shall  be,  but  as 
to  how  they  shall  be  expended.  If  a  large  amount  of  wealth 
is  exacted  from  the  community  in  taxes,  and  is  squandered,  then 
there  would  be  no  justification  for  a  readjustment  of  economic 
relations  which  its  production  involves.  If  the  tax  revenue  is 
used  to  repress  any  phase  of  social  progress,  as  would  be  in 
maintaining  a  standing  army,  it  is  then  a  positive  injury.  Only 
when  the  wealth  created  by  tax  is  used  to  further  the  social 
development  of  the  people  has  it  any  economic  or  ethical  justifi- 
cation. Upon  what  principle,  then,  should  the  public  revenue 
be  expended  in  order  to  justify  its  collection  ? 

SECTION  IV. —  The  Legitimate  Sphere  of  Public  Expenditures. 

Since  the  public  revenue  is  but  the  means  by  which  government 
fulfils  its  functions,  its  expenditure  is  necessarily  limited  to  the 
sphere  of  governmental  action.  We  have  already  seen  that  the 
functions  of  government  are  essentially  protective,  judiciary,  educa- 
tional, and  impersonal  in  their  character.  Clearly  therefore,  the 
sphere  of  public  expenditures  is  properly  limited  to  the  promotion 
of  those  objects  which  may  be  conveniently  grouped  into  two 
classes  as  the  Static  and  the  Dynamic  functions  of  government. 

1  Whether  or  not  a  rise  of  wages  or  an  increase  of  taxation  will  be  beneficial 
will  depend  largely  upon  how  it  is  expended,  and  this,  in  turn,  will  depend 
upon  the  influences  by  which  it  was  brought  about,  but,  in  any  event,  it  will 
cause  an  increase  in  production. 


TWO  FUNCTIONS  OF  GOVERNMENT.  3/1 

The  static  functions  embrace  all  that  is  necessary  to  secure  the 
community  against  a  common  enemy  and  to  enforce  the  recog- 
nized system  of  social  order  as  expressed  in  established  institu- 
tions. This  may  require  a  large  army,  an  extensive  police  force, 
and  a  numerous  staff  of  judiciary  and  executive  officers.  The 
means  necessary  to  sustain  these  instruments  of  public  order 
should  be  supplied  from  the  public  revenue,  for  the  obvious 
reason  that  it  is  the  function  above  all  others  which  can  be  best 
performed  by  the  government,  and  without  which  it  would  be 
impossible  for  the  individual  to  perform  with  safety  and  freedom 
any  of  the  industrial  and  social  duties  of  a  civilized  citizen.  All 
expenditure  for  this  purpose  represents  the  price  that  civilization 
has  to  pay  for  guarding  itself  against  the  effects  of  barbarism,  and 
should  be  reduced  as  rapidly  as  possible. 

To  accomplish  this  reduction  involves  the  exercise  of  the 
dynamic  functions  of  government.  These  relate  to  increasing 
the  opportunity  for  developing  all  phases  of  individual  capacity 
and  freedom.  Opportunity,  as  the  term  is  here  employed,  is 
distinctively  educational  in  the  broadest  sense  of  the  word.  Every 
thing  is  educational  that  brings  man  into  more  frequent  contact 
with  an  increasing  variety  of  social  influences  which  tend  to  stimu- 
late his  wants  and  desires,  sharpen  his  intelligence,  and  actualize 
the  latent  possibilities  of  his  character.  This  embraces  not  only 
the  elementary  education  furnished  by  the  common  school,  which 
is  of  prime  importance  to  citizenship,  but  it  also  includes  the 
furnishing  of  clean,  wholesome  streets,  good  drainage,  ventilation, 
and  other  sanitary  requisites  to  wholesome  domestic  life,  an  abun- 
dance of  public  parks,  gardens,  museums,  free  lectures,  reading- 
rooms,  circulating  libraries,  and,  above  all,  the  leisure  necessary 
to  enable  the  masses  to  avail  themselves  of  these  and  kindred 
educating  and  elevating  influences.  To  the  extent  that  these 
opportunities  are  increased  will  the  intelligence  and  character  of 
the  citizen  be  elevated  and  the  functions  of  the  soldier,  policeman, 
judge,  and  jailer  become  unnecessary.  Consequently,  to  the 
extent  that  the  public  revenue  is  expended  in  performing  the 
dynamic  functions  of  the  state  will  the  amount  required  to 
perform  the  static  functions  diminish.  This  is  the  more  import- 
ant because  every  dollar  that  is  consumed  by  the  government  in 
exercising  its  static  functions  involves  so  much  production 


3/2  PUBLIC  IMPROVEMENTS, 

without  any  real  increase  in  well-being, — it  being  all  consumed  in 
guarding  what  already  exists.  On  the  other  hand,  every  dollar 
expended  by  the  state  in  performing  its  dynamic  functions 
involves  an  increase  of  production,  all  of  which  is  a  net  gain  in 
social  well-being. 

Therefore,  instead  of  treating  all  taxes  as  an  evil  to  be  dimin- 
ished, it  is  only  the  amount  of  the  public  revenue  consumed  by  the 
government  in  performing  its  executive  and  police  duties  that 
can  properly  be  so  regarded.  All  that  is  consumed  in  extending 
the  socializing  opportunities  of  the  people  is  a  positive  benefit 
and  should  be  increased,  especially  as  the  increase  of  the  latter  is 
the  surest  way  of  diminishing  the  former.  To  oppose  an  increase 
of  taxation  for  public  improvements,  in  the  name  of  economy,  is 
a  fallacy  which  cannot  be  too  frequently  exposed.  It  is  just  as 
important  to  have  clean  streets  as  to  have  clean  houses,  and  the 
wealth  consumed  in  the  one  contributes  to  civilization  as  much 
as  that  consumed  in  the  other.  The  only  question  to  be  con- 
sidered regarding  such  expenditures,  is  whether  or  not  they  can 
be  more  efficiently  conducted  by  the  government  than  by  private 
individuals.1  But  that  the  wealth  so  consumed  should  be 
increased  is  sustained  by  all  the  interests  of  civilization,  and 
those  who  oppose  it  are  unconsciously  or  otherwise  obstructing 
the  movement  of  social  progress  as  surely  as  those  who  oppose 
popular  education  and  favor  long  hours  of  labor  and  low  wages. 

SECTION  V. — How  can    Taxes  be  Most  Equitably    Levied, 
Conveniently  Paid,  and  Economically  Collected? 

This  proposition  involves  two  questions  :  (i)  How  taxes  should 
be  levied.  (2)  What  they  should  be  levied  upon. 

i.  There  are  two  general  methods  by  which  the  public  revenue 
can  be  obtained — direct  and  indirect  taxation.  It  is  a  peculiar 
feature  in  the  history  of  taxation  that  those  who  are  charged  with 
the  responsibility  of  raising  the  revenue  and  with  the  administra- 
tion of  government,  usually  prefer  to  obtain  the  revenue  through 
indirect  taxation.  On  the  other  hand,  revenue  reformers  and 
social  reformers  generally  advocate  direct  taxation. 

Direct  taxation  is  urged  in  preference  to  indirect,  chiefly  on  the 
1  See  Part  IV.,  chapter  ii.,  section  iii. 


DIRECT   TAXATION.  373 

ground  that  a  tax  is  an  evil  which  should  always  be  minimized, 
and  that  if  taxes  were  collected  directly  from  the  individual 
he  would  then  realize  how  much  he  paid,  and  would  therefore  be 
more  strenuous  in  his  demands  for  a  retrenchment  of  the  public 
revenue.  They  insist  that  indirect  taxation  is  simply  a  cunning 
device  for  making  the  citizen  contribute  to  the  public  revenue 
under  the  guise  of  purchasing  the  necessaries  of  life,  thus  obtain- 
ing wealth  from  the  individual  which  he  would  otherwise  refuse 
to  contribute.  This  position  is  based  upon  two  assumptions  : 
(i)  that  taxes  are  necessarily  an  evil  to  be  minimized  ;  (2)  that 
direct  taxation  affords  each  individual  an  opportunity  of  correctly 
estimating  the  amount  he  contributes  to  the  public  revenue. 

In  the  first  place  it  is  an  entire  mistake  to  regard  taxes  as  neces- 
sarily an  evil.  We  have  already  seen  that  they  simply  represent 
the  consumption  of  wealth  in  a  public  form,  and  have  the  same 
economic  effect  upon  production,  industry,  and  commerce  gener- 
ally, as  does  private  consumption.  And  whether  or  not  private 
or  public  consumption  will  be  permanently  beneficial  to  the  com- 
munity depends  upon  how  such  consumption  takes  place.  To  the 
degree  that  wealth  is  consumed  in  extending  public  improvements 
and  enlarging  the  social  opportunities  of  the  people,  it  is  both 
economically  and  socially  a  positive  advantage.  The  assumption 
therefore  that  taxes  are  at  best  a  necessary  evil  is  not  only 
erroneous  in  fact,  but  it  is  extremely  mischievous  in  its  effect, 
as  it  inspires  opposition  to  expenditures  for  public  improve- 
ments. 

Nor  is  the  idea  that  direct  taxation  enables  each  individual 
accurately  to  determine  the  amount  he  contributes  to  the  public 
revenue  any  nearer  correct.  This  is  another  of  the  numerous 
errors  arising  from  a  misconception  of  the  law  of  wages.  From 
what  has  already  been  said  it  will  not  be  difficult  to  see  that  a 
direct  tax  upon  the  individual  is  just  as  mobile  as  an  indirect  tax 
levied  upon  the  commodities  he  consumes.  If  a  merchant  can 
transfer  a  tax  upon  flour  to  the  consumer,  because  it  adds  to  its 
cost  to  him,  he  can  also  transfer  to  the  consumer  a  tax  upon  his 
house  or  his  horse  for  the  same  reason. 

The  same  is  true  of  the  laborer.  A  direct  tax  upon  his  house 
or  his  wages  or  any  thing  in  his  possession,  is  simply  so  much 
addition  to  the  cost  of  his  living,  and  can  be  transferred  through 


374  EVILS  OF  DIRECT   TAXATION. 

higher  wages  to  the  employer  in  precisely  the  same  way  as  is  his 
house  rent,  and  the  cost  of  his  food,  clothes,  and  other  necessaries 
of  life.1  In  many  parts  of  England  the  different  classes  of  local 
expenditure  such  as  the  "  poor's  rate,"  the  "cemetery  rate,"  the 
"  highway  rate,"  the  "  water  rate,"  the  "  local-board  rate,"  etc.,  are 
collected  directly  from  each  householder  by  the  tax-gatherer 
in  separate  items,  and  often  by  different  persons.  These  rates 
however,  enter  into  the  cost  of  the  laborer's  living,  and  have  to  be 
covered  by  his  wages  just  as  much  as  the  amount  of  his  grocery 
bill  or  his  house  rent,  and  are  everywhere  so  recognized.8  Where 
the  rates  and  rents  are  high,  as  in  London  and  other  large  centres, 
the  wages  in  all  industries  are  correspondingly  higher  than  in 
localities  where  these  items  are  low,  which  is  one  of  the  reasons 
why  wages  are  always  higher  in  large  cities  than  in  small  towns 
and  rural  districts.3  The  economic  mobility  of  a  tax  is  in  no- 
wise affected  by  the  fact  that  it  is  directly  or  indirectly  collected. 
Whether  the  taxes  are  gathered  directly  from  the  laborer  in  a 
specific  sum,  or  indirectly  through  the  enhanced  price  of  com- 
modities, makes  no  real  difference.  In  either  case  it  enters  into 
the  cost  of  his  living  and  the  price  of  his  service,  and  hence  is 
ultimately  transferred  to  the  employer.  Instead,  therefore,  of 
direct  taxation  enabling  the  laborer  accurately  to  determine  the 
amount  he  pays  to  the  government,  it  has  the  opposite  effect,  and 
he  is  deluded  into  the  belief  that  he  is  heavily  burdened  by  pub- 
lic expenditures,  whereas  he  actually  contributes  nothing  except 
temporarily  during  periods  of  readjustment. 

Moreover,  the  effect  of  direct  taxation  is  pernicious  in  many 
ways.  In  the  first  place  it  creates  a  strong  incentive  for  evading 
taxes,  which  is  a  standing  inducement  to  dishonesty.  So  long  as 
men  believe  that  they  are  permanently  impoverished  by  what 
they  pay  into  the  public  treasury,  they  will  endeavor  to  devise 

1  "  Wealth  of  Nations." 

2  So  manifest  is  this  that  where  whole  classes  of  laborers  have  to  ride  to  and 
from  their  work,  as  in  London  and  other  large  cities,  the  price  of  their  fare  is 
recognized  as  a  proper  cause  for  demanding  higher  wages,  and  in  other  districts 
where  the  employer  furnishes  the  laborer's  house  rent-free,  or  the  privilege  of 
keeping  a  cow,  etc.,  it  is  equally  regarded  as  a  legitimate  reason  for  paying 
lower  wages,  and  in  such  cases  wages  always  are  lower. 

3  "Wealth  and  Progress,"  Part  II.,  chap.  vii. 


PROPERTY  AND  INCOME    TAX.  375 

means  to  elude  the  tax-gatherer  ;  the  "  tax-dodger  "  is  a  well- 
known  character.1  In  the  next  place  direct  taxation  creates  a 
strong  feeling  of  dissatisfaction  among  the  different  classes  in 
the  community  as  to  the  justice  or  injustice  of  taxing  or  not 
taxing  different  classes  of  property.  Hence  the  interminable 
controversy  as  to  whether  or  not  workingmen's  homes  should  be 
exempt  from  taxation.  It  is  held  to  be  unjust  to  tax  the  work- 
ingman's  home  because  that  would  be  putting  the  burden  upon 
those  who  are  least  able  to  bear  it.  But  if  they  are  to  be  exempt, 
at  what  point  should  the  exemption  be  fixed  ?  To  exempt  home- 
steads at  a  given  valuation  would  tend  to  encourage  the  building 
of  houses  within  that  valuation  limit ;  and  that  would  be  a  decided 
injury,  because  it  would  act  as  a  check  upon  the  building  of 
superior  houses,  and  hence  tend  to  stereotype  inferior  domestic 
conditions. 

Again,  whether  or  not  all  personal  property  should  be  taxed, 
and  if  not  what  kind  should  be  exempt,  is  another  point  of  con- 
tention. Some  insist  that  productive  property  should  not  be 
taxed,  because  such  taxation  discourages  industry,  while  others 
contend  that  to  tax  non-productive  property  is  unjust,  since  it 
yields  no  income.  And  certain  it  is  that  every  attempt  to  tax 
personal  property  encourages  systematic  misrepresentation  and 
other  fraudulent  practices  too  numerous  to  recite.2 

The  same  is  true  of  income  tax.  This  tax  is  assessed  on  the 
assumption  that  it  draws  the  revenue  from  surplus  incomes  which 
would  otherwise  escape  taxation.  But  when  it  is  understood  that 
in  the  normal  course  of  economic  movement  all  taxes  are  finally 
drawn  from  the  surplus  product,  the  force  of  such  reasoning 
entirely  disappears.  So  far  from  direct  taxation  being  the  model 
method  of  raising  public  revenue,  therefore,  it  is  essentially  un- 
economic and  demoralizing.  It  involves  the  maximum  incon- 

1  In  Boston  for  instance  it  has  become  an  established  practice  among  a  large 
number  of  rich  men  to  temporarily  reside  in  Nahant,  a  small  town  a  few  miles 
from  the  city,  where  the  local  taxes  are  very  light.  By  living  there  on  the  first 
of  May,  when  assessments  are  made,  they  are  taxed  for  Nahant  instead  of 
Boston.  While  they  actually  live  in  Boston,  and  obtain  all  the  advantages  of 
the  large  public  expenditures  there,  they  are  only  taxed  according  to  the  trifling 
expenditure  in  Nahant. 

*  See  Prof.  E.  R.  A.  Seligman  on  "  The  General  Property  Tax,"  Political 
Science  Quarterly,  March,  1890. 


3/6  INDIRECT   TAXATION. 

venience,  puts  a  premium  on  dishonesty,  and  tends  to  make  the 
average  citizen  a  persistent  enemy  of  public  improvements, 
without  affording  any  compensating  advantages.  In  short,  direct 
taxation  is  defensible  only  in  cases  of  exceptional  emergency 
such  as  wars,1  and  even  then  but  for  the  briefest  period  pos- 
sible. 

Since  the  public  revenue  must  be  directly  or  indirectly  col- 
lected, it  follows  that  all  the  reasons  for  objecting  to  direct 
taxation  obtain  in  favor  of  the  indirect.  While  it  is  highly 
important  that  the  individual  should  always  be  fully  informed 
regarding  real  burdens,  it  is  quite  as  important  that  he  be  not 
deluded  into  assuming  imaginary  ones.  Since  the  public  con- 
sumption represented  by  taxation  is  not  a  permanent  burden 
upon  any  class  in  the  community,  the  public  welfare  demands 
that  taxes  should  be  so  levied  as  not  to  have  that  appearance. 
Consequently,  instead  of  making  taxes  as  direct  as  possible, 
thereby  giving  them  the  most  burdensome  seeming,  they  should 
be  levied  with  the  greatest  indirectness,  so  as  to  be  as  impercepti- 
ble as  possible.  To  the  extent  that  the  individual  ceases  to  be 
conscious  of  his  contribution,  and  its  exact  amount  becomes 
difficult  to  determine,  will  the  incentive  for  the  various  forms  of 
dishonesty  and  corruption  for  evading  taxation  disappear.  And 
when  an  important  public  improvement  is  proposed  which  in- 
volves a  large  expenditure,  the  decision  of  the  average  citizen 
regarding  it  will  be  less  likely  to  be  neutralized  by  the  feelings  of 
his  own  inability  to  contribute  his  share.  By  removing  this  con- 
scious personal  element,  the  question  of  taxation  will  be  considered 
solely  with  regard  to  its  effects  upon  the  community,  thus  removing 
one  of  the  greatest  obstacles  to  public  improvements.  With  this 
view  of  taxation,  all  public  expenditures  of  a  protective,  educa- 
tional, opportunity-creating  character  (judiciously  applied)  would 
be  regarded  as  an  actual  addition  to  the  wealth  of  the  community, 

1  The  only  reason  for  adopting  direct  taxation  in  case  of  war  is  that  the  surplus 
income  is  reached  quicker  by  that  means,  but  it  is  far  more  inconvenient  and 
arbitrary  ;  and  even  in  such  cases  it  is  more  economic  to  borrow  the  necessary 
amount  and  let  it  be  finally  repaid  out  of  the  revenue  indirectly  collected. 
When  it  is  thus  furnished  through  the  normal  operation  of  economic  law,  it 
tends  gradually  to  replenish  the  surplus  from  which  it  is  drawn  by  increased 
production,  and  thus  minimize,  if  not  indeed  obviate,  the  burden  upon  the  com- 
munity. 


ADVANTAGES  OF  LAND    TAX.  377 

to  be  increased,  instead  of  as  at  present  being  treated  as  a  burden 
to  be  avoided  at  every  turn. 

2.  Upon  what  class  of  property  should  taxes  be  levied  is  the 
question  that  remains  to  be  considered.  The  important  point  to 
be  considered  in  determining  the  class  of  property  upon  which 
taxes  should  be  levied  is  how  to  obtain  the  greatest  indirection 
of  movement  with  the  least  cost  of  collection. 

Manifestly  a  tax  will  have  the  greatest  indirection  of  movement, 
and  hence  be  most  completely  subject  to  economic  law  which 
passes  through  the  largest  number  of  hands  and  enters  into  the 
greatest  variety  of  productive  processes.  To  give  a  tax  the 
greatest  indirection,  therefore,  it  must  be  levied  at  the  point 
farthest  removed  from  those  by  whom  it  will  be  finally  paid. 
Since  all  taxes  are  finally  drawn  from  the  surplus  product,  they 
would  necessarily  be  most  direct  when  levied  upon  profits  or 
other  surplus,  and  conversely  most  indirect  when  levied  upon 
the  source  of  raw  material.  Upon  the  same  principle  that  a  tax 
upon  surplus  incomes  cannot  be  shifted  to  any  other  class  in  the 
community,  because  it  does  not  enter  into  the  cost  of  production, 
a  tax  on  raw  material  can  be  shifted  in  a  multitude  of  ways  before 
reaching  any  class  of  consumers,  because  it  all  enters  into  the 
cost  of  production,  and  becomes  an  indistinguishable  part  of  the 
price  of  commodities.  Clearly  then,  the  greatest  indirection 
would  be  secured  by  imposing  a  tax  on  real  estate,  especially 
on  land.  A  tax  upon  land  would  of  course  be  an  addition  to  the 
cost  of  producing  every  species  of  wealth  in  the  community. 

It  is  equally  clear  that  a  tax  upon  real  estate  would  be  the 
most  easy  and  inexpensive  to  collect.  In  the  first  place,  it  is 
the  form  of  property  that  is  most  accessible,  it  cannot  be  con- 
cealed from  the  eye  of  the  assessor  ;  hence  it  affords  the  least 
temptation  'for  tax-dodging,  or  other  dishonorable  means  of 
evasion.  It  is  also  the  class  of  property  whose  value  is  most 
easily  ascertained,  because  it  is  most  frequently  and  permanently 
in  the  open  market  for  sale  or  rent,  either  fact  furnishing  the  basis 
for  ascertaining  its  current  value  at  any  given  time.  This  form 
of  property  has  the  further,  advantage  of  being  immovable.  The 
owner  may  leave  the  city,  State,  or  country,  but  the  real  estate 
remains  as  accessible  as  ever.  Another  advantage  in  this  form 
of  taxation  is  that  it  avoids  all  the  objectionable  inquisitorial 


378  EQUITABLE  NATURE   OF  LAND    TAX. 

features  involved  in  all  direct,  personal,  and  property  taxes. 
There  is  no  other  form  of  property  in  society  upon  which  taxes 
can  be  so  easily  and  accurately  assessed,  so  cheaply  collected,  and 
with  as  little  intrusion  upon  the  freedom  of  the  citizen. 

Nor  can  there  be  any  complaint  that  such  a  tax  would  press 
unduly  upon  the  landowner,  because,  so  far  as  the  income  from 
the  land  represents  the  cost  of  service  rendered  in  using  it  for 
productive  purposes,  the  tax  will  all  come  back  in  the  price 
of  the  product ;  and  only  that  portion  of  the  tax  which  falls 
upon  the  surplus  as  rent,  interest,  and  profit  will  be  untransfera- 
ble and  finally  paid  by  the  landowner,  the  equity  of  which  no 
one  can  question.  Nor  can  any  legitimate  complaint  be  made  by 
those  who  advance  the  tax  at  any  of  the  subsequent  stages.  In 
every  case,  so  far  as  it  affects  the  cost  of  economic  production 
either  in  the  form  of  the  cost  of  raw  material,  tools,  labor,  or  any 
thing  whatsoever,  it  can  be  added  to  the  price.  Neither  could 
there  properly  °be  any  complaint  about  the  personal  wealth  of  the 
rich  escaping  taxation,  because  the  tax  having  been  laid  at  the 
source  of  economic  movement,  its/#//  amount  is  included  in  the 
price  of  every  thing  they  buy.  Hence  their  only  means  of  suc- 
cessfully avoiding  taxation  would  be  to  forego  consumption, 
which  is  to  relinquish  wealth  and  civilization.  If  taxes  were 
thus  levied,  the  rich  jewelry,  wardrobes,  furnishings,  and  equi- 
pages of  the  wealthy  would  all  carry  their  quota  of  taxation,  and 
so  far  as  they  represented  the  stock  of  the  manufacturer  or 
merchant,  or  were  included  in  the  necessary  cost  of  living  of  any 
who  render  productive  service,  the  tax  included  in  their  price 
would  be  transferable  as  in  all  other  cases  ;  that  portion  of  these 
forms  of  wealth  only  which  was  supplied  from  surplus  income 
would  have  finally  to  bear  the  tax.  There  certainly  could  be  no 
justice  in  making  an  article,  which  has  already  borne  its  full 
quota  of  taxation  in  its  economic  journey  to  the  consumer,  yield 
a  fresh  tax  each  year  after  it  leaves  the  sphere  of  economic  move- 
ment. Such  a  tax  must  necessarily  act  as  a  direct  check  upon  all 
new  forms  of  consumption,  especially  among  the  wage-  and  salary- 
receiving  class,  and  thus  be  positively  inimical  to  the  development 
of  a  high  standard  of  living  and  social  progress. 

It  will  perhaps  be  objected  that  if  taxes  were  all  levied  on  real 
estate,  and  acted  as  an  increase  in  the  cost  of  raw  material,  the 


OBJECTIONS  ANSWERED.  379 

tax  would  fall  the  heaviest  on  those  articles  containing  the  largest 
amount  of  raw  material.  And  since  food  and  the  coarser  manu- 
factured products  consumed  by  the  masses  contain  a  much  larger 
proportion  of  raw  material  than  the  finer  products  of  manufacture 
and  art  consumed  by  the  wealthy,  the  tax  would  fall  much  more 
heavily  upon  the  poor  than  upon  the  rich.  This  is  an  objection 
which  can  be  easily  answered,  if  we  bear  in  mind  the  law  govern- 
ing the  mobility  of  taxes.  It  is  true  that  in  high-priced  jewelry, 
pictures,  books,  and  indeed  the  finer  products  of  manufacture 
and  art,  the  raw  material  forms  the  most  insignificant  portion  of 
the  cost.  And  if  the  tax  represented  in  the  price  of  such  articles 
was  limited  to  what  is  conveyed  by  the  cost  of  raw  material,  it 
would  indeed  be  very  slight.  The  fact  is,  however,  that  the  tax 
in  such  products  enters  mainly  through  the  labor.  Although  the 
tax-bearing  raw  material  in  these  products  is  very  slight,  that 
represented  in  the  laborer's  wages,  which  includes  all  that  enters 
into  his  living,  is  very  great,  and  as  the  high  price  of  such  prod- 
ucts is  largely  made  up  of  the  cost  of  labor,  they  bear  the  tax 
levied  upon  all  the  raw  material  consumed  by  the  laborer.  The 
tax,  therefore,  in  the  finer  products  of  manufacture  and  art  will 
not  be  proportionate  to  the  raw  material  they  actually  contain, 
but  to  all  the  raw  material  that  has  been  consumed  by  every  thing 
used  in  producing  them.  In  other  words,  their  contribution  to 
the  public  revenue  will  be  proportionate  to  their  value  as  finished 
products,  and  therefore  they  represent  the  greatest  instead  of  the 
least  tax-transmitting  power. 

Another  objection  that  will  probably  be  urged  against  this 
position  is,  that  a  tax  on  raw  material  has  the  effect  of  adding  to 
the  price  of  the  product  not  only  the  tax  but  also  the  profit  upon 
the  tax  to  those  who  advance  it.  This  view  has  long  been  held 
by  leading  English  economists.1  According  to  this  view,  every 
time  a  tax  is  transferred  it  carries  with  it  an  added  increment  of 

1  Adam  Smith  says  :  "A  tax  upon  those  articles  necessarily  raises  their  price 
somewhat  higher  than  the  amount  of  the  tax,  because  the  dealer  who  advances 
the  tax  must  generally  get  it  back  with  the  profit.  .  .  .  His  employer,  if 
he  is  a  manufacturer,  will  charge  upon  the  price  of  his  goods  this  rise  of  wages 
with  a  profit,  so  that  the  final  payment  of  the  tax,  together  with  his  overcharge, 
will  fall  upon  the  consumer." — "Wealth  of  Nations,"  Book  V.,  chap,  ii., 
article  iv.,  pp.  691,  692. 


380  MILL'S  ERROR. 

profit.  Consequently,  if  it  is  transferred  enough  times,  the  amount 
of  profit  which  is  added  to  the  consumer's  price  of  the  finished 
product  by  the  tax  will  be  greater  than  the  tax  itself.  This  doc- 
trine is  a  logical  part  of  the  orthodox  theory  of  profits,  according 
to  which  the  normal  profits  of  the  capitalists  form  a  necessary 
part  of  the  cost  of  production,  and  hence  of  the  price  of  commo- 
dities. In  stating  this  theory,  Mill  says  :  "  And  profit,  we  have 
also  seen,  is  not  exclusively  the  surplus  remaining  to  the  capitalist 
after  he  has  been  compensated  for  his  outlay,  but  forms,  in  most 
cases,  no  unimportant  part  of  the  outlay  itself."  And  after  enu- 
merating a  long  series  of  processes,  in  which  the  profits  of  each 
are  compounded  in  the  next,  he  adds  :  "  All  these  advances 
form  a  part  of  the  cost  of  production  of  linen.  Profits,  therefore, 
as  well  as  wages,  enter  into  the  cost  of  production  which  deter- 
mines the  value  of  the  produce."  '  Were  this  doctrine  correct, 
it  would  certainly  form  an  unanswerable  objection  to  all  indirect 
taxation,  and  indeed  to  indirect  production  also.  Since  every 
specialization  and  division  of  labor  adds  to  the  series  of  distinct 
profit-yielding  processes,  industrial  improvements  would  serve  to 
increase  the  power  of  the  capitalist  to  add  compound  profit  to  the 
consumer's  price  of  commodities. 

Fortunately  for  civilization,  however,  economic  law  permits  no 
such  compound  profit-making  process.  We  have  already  seen 
that  the  price  of  the  product  in  a  given  market  tends  to  a 
uniformity  on  the  basis  of  the  cost  of  furnishing  tha  dearest 
portion.2  Consequently  the  profits  of  each  producer  can  only  be 
equal  to  the  difference  between  his  cost  of  production  and  that 
of  those  furnishing  the  dearest  increment  of  the  general  supply, 
this  increment  being  sold  without  profit.  It  is  impossible  there- 
fore in  any  market,  or  at  any  stage  of  the  productive  process,  to 
add  the  producer's  profit  to  the  consumer's  price,  since  competi- 
tion compels  all  who  contribute  to  the  same  market  to  sell  at  the 
same  price,  which  price  is  fixed  by  the  cost  of  the  no-profit  produc- 
ers. Consequently,  if  there  is  any  profit,  it  must  be  obtained  from 
nature  through  greater  economy  in  production.  It  will  thus  be 
seen  that  the  claim  that  taxes  upon  land  or  raw  material  must  be 
repaid  with  a  profit  to  those  who  pay  them,  is  a  pure  phantom 

1  "  Principles  of  Political  Economy,"  vol.  i.,  p.  568. 
8  Part  II.,  chap,  iv.,  pp.  125-128.      Cf,  pp.  205,  206. 


POPULAR  DELUSION.  381 

which  entirely  vanishes  in  the  light  of  the  true  law  of  economic 
prices,  and  with  it  disappear  all  the  objections  to  indirect  taxa- 
tion, based  upon  adding  compound  profit  to  consumers'  prices. 

It  will  be  seen  that  the  question  of  taxation  is  much  less  funda- 
mental than  it  is  usually  made  to  appear.  Like  the  question  of 
money,  it  is  frequently  employed  to  influence  public  opinion  on 
a  multitude  of  questions  on  which  it  has  practically  no  bearing. 
Taxation  is  simply  the  consumption  of  wealth  in  a  public  form, 
and  has  no  more  economic  effect  than  the  same  amount  of  wealth 
privately  consumed.  The  only  interest  therefore  the  community 
has  in  the  question  is  that  the  taxes  shall  be  economically  col- 
lected and  wisely  expended.  If  this  fact  is  once  clearly  under- 
stood, the  misconceptions  in  which  the  subject  has  been  involved 
will  disappear.  Then  the  popular  delusion  that  all  taxes  are 
finally  paid  by  the  laborer  would  lose  its  political  utility,  and  the 
equally  erroneous  notion  of  Henry  George,  that  to  levy  all  taxes 
"on  land-values  would  abolish  poverty  and  establish  universal 
freedom,  would  at  once  be  recognized  as  a  mere  social  mirage. 
The  only  advantage  in  levying  taxes  upon  land  and  real  estate  in 
preference  to  incomes  and  personal  property  is  that  the  revenue 
can  be  collected  from  the  former  with  greater  ease,  certainty, 
and  convenience. 


CHAPTER  V. 
BUSINESS  DEPRESSIONS. 

SECTION  I. — Economic  Characteristics  of  Business 
Depressions. 

THERE  are  few  questions  upon  which  a  greater  variety  of 
opinion  exists  than  business  depressions.  They  are  ascribed  to 
a  different  cause  in  every  country,  and  often  to  as  many  different 
causes  in  the  same  country  as  there  are  phases  of  social  reform, 
political  parties,  sectional  or  industrial  interests.1  Before  any 
intelligent  understanding  of  the  cause  of  these  social  calamities 
can  be  obtained,  it  will  be  necessary  to  consider  their  economic 
peculiarities,  and  the  industrial  or  other  conditions  under  which 
they  occur. 

The  first  general  characteristic  of  business  depressions  is  that 
they  are  periods  of  exceptional  industrial  adversity.  But  there 
are  two  kinds  of  industrial  adversity,  whose  characteristics  and 
causes  are  widely  different ;  these  are  famines  and  business  de- 
pressions. A  famine  is  an  actual  scarcity  of  consumable  wealth  ; 
a  business  depression,  on  the  contrary,  is  a  relative  plethora  of 
consumable  wealth.  The  first  symptom  of  a  famine  is  the  failure 
to  produce  a  sufficient  amount  of  wealth  to  meet  the  existing  de- 

1  The  business  depressions  of  1873-1878  were  attributed  to  over  two  hundred 
different  causes  by  the  various  economists,  capitalists,  philosophers,  and  re- 
formers, who  testified  before  the  Congressional  Committee  to  investigate  the 
subject.  See  reports  of  the  Wright  and  Hewitt  Congressional  Committees  on 
"  Industrial  Depressions,"  also  the  report  of  the  United  States  Senate  Com- 
mittee on  "  Education  and  Labor,"  1885,  and  the  report  of  the  Commissioner 
of  Labor  on  "  Industrial  Depressions,"  1886.  Also  report  of  Royal  Commis- 
sion (England,  1885)  on  the  "  Cause  of  Industrial  Depressions." 

382 


DEPRESSIONS,    FAMINES,  AND  PANICS.  383 

mands  of  the  community  ;  while  the  first  indication  of  a  business 
depression  is  the  failure  to  find  sufficient  customers  to  carry  off 
the  existing  supply  of  commodities.  The  economic  distinction, 
therefore,  between  a  famine  and  a  business  depression  is  that  the 
former  springs  from  a  scarcity  of  commodities  and  the  latter  from 
a  scarcity  of  consumers.  , 

Nor  do  famines  and  business  depressions  both  occur  in  the 
same  countries.  India,  Egypt,  and  other  less  civilized  countries, 
have  frequently  suffered  severely  from  famine  and  consequent  pes- 
tilence, as  did  also  Europe  during  the  Middle  Ages, — thousands, 
and  sometimes  millions,  died  of  hunger  and  disease,1 — but  they 
have  no  business  depressions.  America  and  the  leading  countries 
in  Europe  no  longer  have  famines,  but  they  have  business  depres- 
sions. Famines  and  business  depressions  are  not  only  economi- 
cally distinct,  and  occur  in  different  countries,  but  the  very 
conditions  which  promote  the  one  tend  to  prevent  the  other. 
The  very  specialization  of  industry  and  development  of  science 
that  have  steadily  diminished  the  possibility  of  famines,  have 
brought  into  existence  involved  commercial  relations  and  the 
factory  system  which  make  business  depressions  possible.  Nor 
must  business  depressions  be  confounded  with  financial  panics  ; 
these  are  disturbances  of  another  kind.  A  money  panic  may 
arise  in  the  midst  of  business  prosperity  as  at  present  (1890). 
Although,  like  any  other  social  disturbance,  a  financial  panic  has 
a  harmful  effect  upon  the  industrial  community,  it  being  purely  a 
fiscal  disturbance  the  evil  effect  is  largely  restricted  to  the  specu- 
lative class.  A  money  panic  may  be  the  final  straw  which  reveals 
a  business  depression,  but  if  the  consumption  of  commodities  is 
practically  equal  to  the  production  it  cannot  produce  one.  Busi- 
ness depressions,  therefore,  may  be  characterized  as  periods  of 
industrial  adversity  peculiar  to  machine-using  countries,  and 
arise  from  a  failure  to  sell  and  never  from  an  inability  to  produce 
consumable  wealth. 

Another  characteristic  of  business  depressions  is  that  they  are 
not  local  or  even  national  in  their  movement,  but  that  they  occur 
with  striking  uniformity  in  all  countries  in  which  they  occur  at 
all.  This  will  be  seen  by  the  following  table,  which  shows  the 

1  Mr.  Cornelius  Walford,  F.I. A.,  F.S.S.,  in  a  paper  published  in  the  Sta- 
tistical Journal,  vol.  xli.,  gives  the  history  of  350  famines. 


384  Hi 'STORY   OF  DEPRESSIONS, 

recurrence  of  business  depressions  in  England,  France,  United 
States,  Germany,  and  Belgium  during  this  century.1 

England  France.         United  States.         Germany.  Belgium. 

1803  1804  

1810  1810  

1815  1813  1814  

1818  1818  1818  .... 

1826  1826  1826  

1830  1830  .....  

1837  1837  1837  1837          ,      1837 

1847  1847  1847  1847  1848 

1857  1856  1857  1855  1855 

1866  1866  1867  1864 

1873  1873  1873  1873  1873 

1883  1882  1882  1882  1882 

1885  1885  1885  1885  1885 

By  this  table  three  facts  are  clearly  indicated  :  (i)  That  busi- 
ness depressions  are  limited  to  machine-using  countries  beginning 
in  England  with  the  rise  of  the  factory  system.  (2)  That  they 
have  steadily  extended  to  other  countries  as  fast  as  factory 
methods  of  production  have  been  adopted  ;  that  is  to  say,  as 
fast  as  they  became  manufacturing  and  commercial  countries. 
(3)  That  business  depressions  have  been  practically  uniform 
and  international  in  their  movement,  and  that  all  countries  with- 
out regard  to  form  of  government,  political  institutions,  physical 
or  climatic  peculiarities,  when  once  afflicted  are  visited  with 
every  recurrence  and  almost  simultaneously.  With  these  facts 
before  us  regarding  the  nature  and  history  of  business  depres- 
sions, we  are  in  a  position  to  intelligently  consider  the  causes 
from  which  they  arise. 

SECTION  II. — Cause  of  Business  Depressions. 

In  order  to  warrant  the  conclusion  that  any  circumstance  is 
the  cause  of  succeeding  phenomena,  it  is  at  least  necessary:  (i) 
that  it  should  be  adequate  to  produce  the  effect  ;  (2)  that  it 
sustain  some  necessary  relation  to  it.  In  seeking  the  cause  of 
business  depressions  therefore,  we  must  first  eliminate  from  the 
problem  all  influences  which  are  clearly  insufficient  to  produce 
them.  Among  the  hundred  or  more  specific  causes  assigned  for 

1  First  Annual  Report  of  U.  S.  Commissioner  of  Labor,  p.  290. 


CAUSES  ASSIGNED.  385 

the  business  depression  of  1873  in  this  country  were  excessive 
speculation  in  railroads  and  real  estate,  inflation  of  the  currency, 
high  protective  tariff,  and  the  unnatural  stimulus  given  to  industry 
by  the  war.1  But  when  we  observe  that  none  of  these  things 
occurred  in  England,  and  that  still  the  industrial  depression  was 
as  severe  there  as  here,  it  becomes  clear  that  these  causes  were 
insufficient  to  explain  the  facts.  So  too  in  the  case  of  France.  The 
fact  that  at  the  close  of  the  war  in  1872  France  was  compelled  to 
pay  an  indemnity  to  Germany  of  five  millards  of  francs  in  gold, 
appears  at  first  sight  to  furnish  a  sufficient  reason  why  she  should 
have  experienced  a  state  of  severe  business  depression  and 
poverty  in  1873.  But  when  we  observe  that  the  depression  was 
just  as  severe  and  protracted  in  Germany,  where  this  colossal 
indemnity  was  received,  as  in  France,  from  whom  it  was  exacted, 
the  virtue  of  this  explanation  disappears.  Its  inadequacy  be- 
comes still  more  apparent  when  we  remember  that  although 
none  of  these  circumstances  existed  in  England,  Belgium,  and 
America,  they  all  had  business  depressions  equally  severe  and 
protracted.  The  same  is  true  of  causes  assigned  for  the 
depressions  of  1882  and  1885."  Without  entering  further  into 
details  regarding  this  class  of  causes  then,  we  are  abundantly 
warranted  in  rejecting  them  as  wholly  inadequate  to  account  for 
the  phenomena. 

To  what  cause  then  can  business  depressions  be  attributed  ? 
A  business  depression  can  never  occur  unless  the  equilibrium 
between  consumption  and  production  is  disturbed  in  such  a 
manner  as  to  result  in  a  diminution  of  consumption  as  compared 
with  production.  The  first  symptom  of  an  approaching  business 
depression  is  the  inability  of  producers  to  find  customers  for  their 
whole  product  at  remunerative  prices.  Manufacturers  will  con- 

1  "  There  had  been  a  period  of  excessive  speculation,  especially  in  railroads 
and  real  estate,  large  failures  following  that  of  Jay  Cooke,  inflation  of  the  cur- 
rency, high  protective  tariff,  large  immigration,   and  the  unnatural  stimulus 
given  to  industry  by  the  war,  brought  the  monetary  affairs  of  the  country  to  a 
crisis,  resulting  in  general  distrust,  fall  of  prices,  apprehension,  and  all  the  train 
of  evils  which  follow  such  crises." — "  First  Annual  Report  of  the  Commissioner 
of  Labor,"  1886,  p.  60. 

2  For  the  cause  of  the  depression  in   1882  see  "  First  Annual  Report  of  the 
Commissioner  of  Labor,"  p.  76,  and  for  a  summary  of  the  causes  and  remedies 
recommended,  see  ibid.,  pp.  291-293. 

25 


386  THE  REAL    CAUSE. 

tinue  to  produce  wealth  and  will  prosper  so  long  as  they  can  find 
a  remunerative  market  for  their  wares,  even  though  wars  rage  or 
governments  are  overthrown.  Production  being  but  the  economic 
response  to  consumption,  it  is  to  the  influences  which  effect  con- 
sumption that  we  must  look  both  for  the  cause  and  cure  of  business 
depressions.  Nor  is  this  all.  Since  business  depressions  are 
peculiar  to  factory  conditions,  and  the  market  for  factory-made 
products  depends  chiefly  upon  the  consumption  of  the  laboring 
classes,  it  follows  that  it  is  the  failure  of  the  laborers'  consump- 
tion to  keep  pace  with  the  capitalists'  production — the  failure  of 
the  home  to  grow  as  fast  as  the  factory — that  really  produces 
business  depressions.  Here  then  we  have  a  cause  that  is  both 
adequate  to  produce  the  effect  and  necessary  to  it.  So  long  as 
the  consumption  of  the  masses — i.e.,  the  wage-  and  salary- 
receiving  class — increases  commensurately  with  the  productive 
capacity  of  the  community,  nothing  can  create  a  business  depres- 
sion ;  and  whenever  this  does  not  occur  nothing  can  prevent  one. 

Why  does  the  laborers'  consumption  periodically  fall  behind 
the  capitalists'  production  ?  Is  it  a  necessary  part  of  the  present 
productive  system,  or  is  it  merely  incidental  to  it  ?  The  essential 
features  of  capitalistic  production  are  specialization  of  labor, 
concentration  of  capital,  and  the  use  of  factory  methods.  As 
already  pointed  out,  these  are  essentially  socializing  in  their  in- 
fluence ;  hence,  instead  of  being  inimical  to  the  growth  of  the 
laborers'  consumption,  they  are  characteristically  favorable  to  it. 
This  is  also  shown  by  the  fact  that  all  phases  of  social  progress 
have  advanced  more  in  a  single  century  under  the  factory  or 
capitalistic  regime  than  in  any  previous  period  of  the  world's 
history.  And  it  may  be  added  that  this  progress  has  been 
greatest  in  those  countries  where  the  factory  system  has  most 
completely  prevailed.  Witness  this  country  and  England,  as  com- 
pared with  the  countries  of  Asia  and  Africa. 

There  is  another  feature  of  this  industrial  regime,  however, 
which  should  not  be  overlooked.  In  proportion  as  the  factory 
system  improves  economically,  it  tends  to  make  the  laborer  more 
and  more  a  specialist  of  some  particular  part  of  the  finished 
product.  Thus,  the  manufacture  of  a  shoe  is  now  divided  into 
nearly  seventy  specified  occupations,  and  cotton  manufacture  into 
eighty-six.  In  proportion  as  the  laborers'  employment  is  thus 


PHASES  OF  FACTORY  SYSTEM.  387 

specified,  the  speed  and  quantity  of  machinery  is  increased,  and 
the  strain  upon  his  physical  and  nervous  energy  intensified. 
With  this  concentrating  and  specializing  tendency  the  piece- 
work system  has  been  generally  established,  which  places  the 
laborers  in  severe  competition  with  each  other,  and  often  results 
in  overdoing.1  Again,  the  use  of  improved  machinery  and  the 
specialization  of  labor  tend  to  diminish  the  necessity  of  a  high 
degree  of  skill  in  the  laborer.  This  leads  to  the  employment  of 
a  large  number  of  women  and  children  in  all  branches  of  manu- 
facturing industries ;  and,  like  the  men,  they  too  are  forced  to  be 
automatic  factors,  their  portion  of  the  work  being  an  indispensable 
part  of  the  whole  productive  process.  They  have  to  labor  the 
same  number  of  hours,  under  the  same  constantly  increasing 
strain  and  pressure,  and  under  the  same  sanitary  conditions  as 
the  men.  The  obvious  effect  of  all  this  is  to  deaden  the  springs 
of  ambition  and  check  the  growth  of  new  desires  and  superior 
tastes  and  habits  of  life.  The  laborer  whose  energies  are  ex- 
hausted in  the  workshop  is  naturally  impervious  to  more  ele- 
vating and  refining  influences.  His  leisure  moments  find  him 
physically  tired,  mentally  dull,  and  hence  morally  and  socially 
indifferent.  The  inevitable  tendency  of  this  is  to  cause  him  to 
gravitate  towards  the  saloon  rather  than  the  reading-room, 
lecture-hall,  or  theatre  for  his  instruction  and  entertainment. 
Persons  who  are  subjected  to  such  continued  toil  from  child- 
hood up,  in  the  foul  air  of  mines  and  the  s\«ltering  heat  and 
stifling  atmosphere  of  mills  and  factories,  cannot  be  expected  to 
develop  the  ambition  and  force  of  character  necessary  to  inspire 
and  elevate  their  domestic  and  social  life.  The  effect  of  such 
conditions  upon  women  and  children  is  even  more  damaging 
than  upon  men.  The  employment  of  women,  especially  wives 
and  mothers,  in  the  factory  tends  to  sap  the  very  source  whence 
the  springs  of  social  character  arise.  Just  in  proportion  as 
woman  is  transferred  from  the  home  to  the  workshop  is  her  in- 

1  So  general  is  this  that  in  nearly  all  factory  employments  it  is  necessary  to 
have  a  large  number,  often  5  or  10  per  cent.,  of  spare  hands,  or  substitutes,  who 
take  the  place  of  those  who  are  compelled  to  be  absent  a  day  or  two  at  a  time 
through  sickness,  or  for  a  rest  to  prevent  sickness,  etc.  It  is  not  an  uncommon 
thing  for  this,  in  a  large  proportion  of  cases,  to  average  as  much  as  one  day  in 
a  week. 


388  ARREST  OF  CONSUMPTION. 

spiring,  socializing,  and  humanizing  influence  in  the  domestic 
circle  destroyed — a  condition  that  will  inevitably  result  in  stereo- 
typing the  social  life  of  the  masses,  and  in  checking  the  increase 
of  their  wealth-consuming  capacity. 

This  relative  diminution  of  consumption  soon  begins  to  show 
itself  in  the  accumulation  of  the  merchants'  stock,  which  reacts 
upon  the  manufacturer,  first  in  diminished  orders  for  his  product, 
then  in  a  severe  competition  among  producers  for  the  contracted 
market,  in  which  th'e  smaller  concerns  are  compelled  to  close, 
finally  creating  among  the  laborers  enforced  idleness,  the  most 
powerful  factor  of  all  in  promoting  business  depressions.  When 
the  laborer  ceases  to  have  employment  he  practically  ceases  to 
be  a  consumer  ;  for  although  in  modern  society  he  is  not  per- 
mitted to  starve,  he  has  necessarily  to  be  supported  by  others, 
either  in  the  form  of  indebtedness  or  charity.  There  is  no  one 
cause  by  which  the  aggregate  consumption  of  the  community  is 
so  rapidly  diminished  as  by  enforced  idleness.  Like  a  contagious 
disease,  it  rapidly  increases  its  own  power  for  evil.  The  actual 
restriction  of  the  market  resulting  from  enforced  idleness  still 
further  limits  the  sale  of  commodities,  rendering  production  un- 
profitable ;  this  again  results  in  suspending  production  and  in 
further  discharges,  inevitably  culminating  in  a  business  depres- 
sion in  which,  through  bankruptcy,  the  large  capitalists  absorb 
the  smaller  ones,  and  are  thus  -enabled  to  wait  till  the  lagging 
consumption  again  overtakes  production.  Every  such  ruinous 
adjustment  is  a  temporary  arrest  of  progress,  and  the  more  fre- 
quently it  occurs  the  more  permanent  becomes  its  evil  influence 
upon  society. 

Still  another  source  of  idleness  is  the  use  of  improved  ma- 
chinery. Indeed  changes  in  machinery  are  only  improvements 
in  proportion  as  they  are  labor-saving — i.e.,  labor-discharging. 
Hence  machinery  that  will  discharge  the  most  laborers  is  always 
adopted.  This  takes  place  most  frequently  when  trade  is  most 
prosperous,  and  in  countries  where  machine-using  methods  are 
most  general.  Nor  is  it  possible,  or  even  desirable,  that  this 
should  be  otherwise,  since  it  is  only  through  the  use  of  improved 
methods  of  production  that  the  drudgery  of  human  labor  can, be 
reduced,  the  luxuries  of  life  increased,  and  social  well-being  en- 
hanced. Manifestly  unless  new  employments  are  created  as  fast 


MISTAKEN  POLICY  OF  EMPLOYERS.  389 

as  laborers  are  discharged,  enforced  idleness  and  the  recurrence 
of  business  depressions  are  inevitable. 

It  thus  appears  that  while  the  factory  system  necessarily  creates 
socializing  conditions,  it  has  been  accompanied  by  influences 
which  tend  greatly  to  neutralize  their  beneficial  effect ;  but  it 
it  is  not  difficult  to  see  that  these  neutralizing  influences  are  in 
no  sense  a  necessary  part  of  the  industrial  system.  While  the 
various  forms  of  industrial  specialization  tend  to  increase  the 
draft  upon  the  laborers'  energies,  it  is  not  at  all  necessary  that 
this  should  be  inimical  to  his  social  advancement.  There  is 
nothing  in  the  nature  of  factory  methods  which  makes  it  neces- 
sary that  their  use  should  be  physically  and  socially  deteriorating. 
Bad  ventilation  and  other  unsanitary  conditions,  dangerous 
machinery,  overdriving,  the  employment  of  young  children,  and 
long  hours  of  labor  are  not  essential  to  the  factory  system,  any 
more  than  slave  labor  and  the  cat-o'-nine  tails  were  an  essential 
part  of  cotton-growing. 

With  increase  of  productive  power  and  its  accompanying 
pressure  upon  the  laborers'  resources  should  have  come  a  com- 
mensurate increase  in  his  leisure  and  opportunities  for  social 
improvement.  The  reason  this  has  been  neglected  is  entirely 
due  to  the  mistaken  social  policy  pursued  by  the  employing 
class.  For  the  same  reason  that  the  Southern  slave-holder 
believed  that  slave  labor  was  necessary  to  the  cheap  production 
of  cotton  and,  consequently,  to  the  prosperity  of  the  planters, 
the  modern  employer  has  acted  upon  the  erroneous  assumption 
that  cheap  labor  is  necessary  to  his  business  prosperity.  Accord- 
ingly he  has  resisted  instead  of  promoting  every  effort  to  ameli- 
orate the  condition  of  the  laboring  classes,  from  the  same  motive 
that  the  Southern  planter  opposed  the  abolition  of  slavery.  All 
other  efforts  to  increase  the  social  opportunities  of  the  laborer 
have  been  resisted  by  the  employing  class  as  mischievous  agita- 
tions, until  they  were  made  imperative  by  statute  law  or  social 
custom.  Indeed  their  whole  attitude  toward  the  labor  movement 
in  general  has  been  one  of  persistent  hostility.  The  experience 
of  the  last  fifty  years,  however,  has  shown  that  in  almost  every 
instance  they  were  entirely  mistaken.  It  is  now  admitted  that 
free  labor  is  more  productive  and  economic  than  slave  labor  ever 
was.  And  instead  of  the  prosperity  of  the  manufacturing  class 


390  ECONOMISTS  AT  FAULT. 

having  been  lessened  by  the  various  restrictions  imposed  upon 
their  inhumane  and  uneconomic  policy,  it  has  steadily  increased. 
The  employer  of  to-day,  with  wages  twice  as  high,  hours  of  labor 
one  fourth  less,  and  the  sanitary  and  social  conditions  of  the 
laborer  a  hundred  per  cent,  better,  is  more  prosperous  than  were 
his  predecessors  fifty  years  ago. 

Nor  is  this  socially  repressive  policy  due  to  any  peculiar  per- 
versity of  the  employing  class.  They  are  not  less  humane  and 
philanthropic  than  any  other  portion  of  the  community,  as  their 
liberal  contributions  to  charitable,  educational,  and  other  public 
institutions  conclusively  show.  Their  antagonistic  attitude  arises 
from  a  misconception  of  their  economic  relation  to  the  laboring 
class  ;  and  for  this,  the  economic  teaching  of  the  period  is 
responsible.  The  failure  of  the  economist  to  recognize  the  revo- 
lution in  the  economic  relation  of  the  laborer  to  the  capitalist 
which  took  place  with  the  inauguration  of  the  factory  system, 
naturally  led  to  the  mistake  of  ignoring  the  economic  importance 
of  the  laborers'  consumption  as  the  market  basis  for  factory-made 
products.  With  this  ante-factory-period  view  of  the  laborers' 
economic  position,  it  naturally  appeared  to  the  employer  that  the 
true  economic  policy  was  to  obtain  his  labor  as  cheaply  as  possi- 
ble. Oblivious  of  the  fact  that  the  success  of  his  factory  as  a  mere 
money-making  institution  depends  upon  the  character  and  wealth- 
consuming  capacity  of  the  masses,  he  has  systematically  regarded 
the  laborers  as  merely  so  much  productive  force  to  be  used  to  the 
limit  of  their  endurance. 

Under  the  influence  of  such  doctrines,  it  is  not  surprising  that 
the  employing  class  should  use  every  effort,  industrial  and  politi- 
cal, to  resist  all  endeavors  to  increase  the  social  opportunities  or 
raise  the  wages  of  the  laborer.1  Thus,  through'the  influence  of 
a  mistaken  industrial  policy,  the  capitalist  in  the  vain  endeavor 
to  increase  his  power  to  produce,  by  limiting  the  power  of  the 
laborer  to  consume,  defeats  the  very  object  he  most  desires  to 
accomplish,  and  instead  of  promoting  his  own  permanent  pros- 
perity, he  is  continually  planting  the  seed  of  business  depression, 
enforced  idleness,  and  bankruptcy.  Thus  business  depressions, 
instead  of  being  a  necessary  part  of  the  factory  system,  are  really 
the  penalty  which  the  employing  class  and  the  community  have 
1  See  "Wealth  and  Progress,"  Part  III.,  chapters  vi.  and  vii. 


FACTS    TO  BE  RECOGNIZED.  39! 

to  pay  for  ignoring  the  economic  and  social  advancement  of  the 
laboring  classes  as  the  real  basis  of  industrial  prosperity. 

SECTION  III. —  The  Prevention  of  Business  Depressions. 

It  will  be  observed  that  business  depressions  are  wholly  a  prob- 
lem of  the  market  ;  and  also  that  the  market,  while  furnishing 
the  economic  basis  for  production,  is  a  social  phenomenon,  having 
its  rise  in  the  social  life  of  the  people.  Whether  scientific  pro- 
duction shall  continually  cheapen  wealth  and  increase  social 
well-being,  or  whether  it  shall  create  enforced  idleness  and  busi- 
ness depressions,  depends  upon  whether  new  employments  are 
created  as  fast  as  labor-saving  appliances  are  adopted.  Produc- 
tion being  the  response  to  consumption,  new  employments  can  be 
created  only  as  fast  as  new  demands  for  commodities  arise 
among  the  masses.  This  involves  an  important  change  in  the 
general  point  of  view  from  which  the  economic  position  of  the 
laborer  is  regarded.  In  the  first  place  it  must  be  distinctly  recog- 
nized as  an  irrevocable  historic  fact,  that  with  the  inauguration  of 
the  factory  system  the  economic  relation  of  the  laborer  to  the  capital- 
ist was  radically  changed,  and  that  under  modern  industrial  conditions 
the  market  for  the  capitalists'  production  finally  depends  upon  the 
extent  of  the  laborers'  consumption  j  hence  business  prosperity  can  be 
continuous  only  in  proportion  as  real  wages  rise.  And  it  must  be 
no  less  distinctly  recognized  as  a  fundamental  principle  in  eco- 
nomics that  the  cost  of  production  is  the  controlling  element  in  price 
movement,  and  consequently  that  the  determining  element  in  the  price 
of  labor  (wages)  is  the  cost  of  the  laborers'  living  as  determined  by 
the  standard  of  his  social  life, 

It  should  be'  remembered,  however,  that  capitalists  are  not 
philosophers,  nor  have  we  any  right  to  expect  them  to  be.  They 
are  captains  of  industry,  and  as  such  are  too  busy  with  the  ad- 
ministration of  affairs  to  solve  economic  problems.  Their  func- 
tion is  to  apply  rather  than  to  develop  economic  principles.  The 
same  is  substantially  true  of  the  journalist.  Although  his  posi- 
tion is  that  of  an  educator  of  public  opinion,  he  is  more  like  a 
manufacturer  than  a  scientist.  He  is  occupied  rather  with  the 
popular  presentation  of  accepted  economic  doctrines  than  with 
testing  their  validity.  Like  the  capitalists,  the  ablest  editors  and 


392  NATURAL  REMEDY. 

essayists  rely  mainly  upon  economists  for  their  economic  princi- 
ples. It  is  to  the  economists,  therefore,  that  we  have  a  right  to 
look  for  the  recognition  and  active  propagation  of  the  economic 
truths  underlying  this  important  problem. 

When  the  foregoing  propositions  are  emphatically  taught  in 
colleges  and  acted  upon  by  capitalists,  the  first  great  step 
towards  a  solution,  not  only  of  industrial  depressions  but  of  the 
social  problem  will  have  been  taken  ;  and  the  chief  cause  of  an- 
tagonism between  the  laboring  and  the  employing  class  will  have 
been  removed.  So  long  as  the  laborer  and  capitalist  believe  their 
interests  are  economically  antagonistic,  unity  of  action  to  redress 
social  evils  is  almost  impossible.  If,  however,  the  employing  class 
can  be  once  made  to  realize  (i)  that  there  is  no  economic  antag- 
onism between  the  laborers'  interests  and  their  own,  and  (2)  that 
the  initial  point  of  industrial  prosperity  is  not  in  production  but 
in  consumption — not  in  the  factory  but  in  the  home — not  in  profits 
but  in  wages, — there  will  for  the  first  time  be  a  common  agreement 
as  to  the  point  towards  which  all  efforts  for  industrial  improve- 
ments must  be  directed,  namely,  the  elevation  of  the  laborer  s  stand- 
ard of.  living.  This  fact  established,  the  only  question  would  be 
as  to  the  best  means  of  promoting  that  end,  since  whatever  would 
do  that  would  promote  the  welfare  of  the  whole  community. 

It  is  not  to  be  inferred  from  the  above  that  an  increase  in  the 
laborers'  consumption  (real  wages)  is  a  simple  matter  that  can  be 
arbitrarily  accomplished  by  an  official  proclamation  or  a  legisla- 
tive enactment.  On  the  contrary,  the  laborer's  standard  of  liv- 
ing, being  determined  by  his  social  habits,  is  a  matter  of  relatively 
slow  development. 

Although  there  is  no  immediate  panacea  for  business  depres- 
sions any  more  than  for  poverty,  despotism,  or  other  evils  arising 
from  the  lack  of  social  character  among  the  masses,  there  are  three 
ways  in  which  their  severity  may  be  diminished  and  their  ulti- 
mate elimination  promoted  :  (i)  negatively  by  lessening  the  ob- 
structions to  the  social  progress  of  the  masses  ;  (2)  positively  by 
constantly  increasing  the  social  opportunities  of  the  masses  ;  (3) 
by  establishing  an  international  business  barometer  by  which  ap- 
proaching business  depressions  will  be  indicated  sufficiently  in 
advance  to  enable  their  severest  phases  to  be  avoided. 

i.  The  greatest  obstruction  to  the  social  progress  of  the  masses, 
26 


DUTY  OF  EMPLOYING   CLASS.  393 

as  already  pointed  out,  is  the  opposition  of  the  employing  class 
and  their  literary  and  legislative, allies.  With  the  acceptance  of 
the  doctrine  here  indicated,  there  would  naturally  be  a  marked 
change  in  the  attitude  of  the  press  and  statesmen  toward  the  social 
question,  by  which  much  of  their  opposition  would  be  removed. 
In  the  first  place,  such  men  as  Edward  Atkinson,  David  A.  Wells, 
and  the  leading  commercial  and  political  journals  would  no  longer 
appear  as  the  opponents  of  every  proposition,  legislative  or  other, 
for  improving  the  laborers'  social  condition.  Indeed  much  of 
their  present  attitude  toward  the  social  question  would  then  be 
properly  regarded  as  opposition  to  the  public  weal.  The  accept- 
ance of  this  view  would  also  further  the  same  end  by  preventing 
a  vast  amount  of  misdirected  effort  at  social  reform,  the  futility 
of  which  often  serves  to  strengthen  the  hands  of  the  opposition. 
If  it  were  clearly  understood  that  nothing  can  promote  business 
prosperity  which  does  not  directly  or  indirectly  tend  to  elevate 
the  laborers'  social  life,  and  make  a  larger  consumption  of  wealth 
necessary,  then  the  various  social  chimeras — such  as  land  nation- 
alization, socialism,  and  the  like — would  be  discredited  in  advance 
as  having  no  real  bearing  upon  the  question. 

2.  The  disparity  between  the  increase  in  the  laborers'  consump- 
tion as  compared  with  that  of  the  capitalists'  production  would 
be  still  more  diminished,  if  the  energy  which  has  been  constantly 
devoted  to  limiting  the  laborers'  social  opportunities  were  ap- 
plied to  increasing  them.  Then  every  proposition  for  improving 
the  condition  of  the  masses  would  be  approached  with  the  desire 
of  adopting  whatever  feasible  element  of  good  it  contained,  instead 
of  a  determination  to  magnify  all  its  disadvantages  for  the 
purpose  of  defeating  it. 

In  order  that  the  policy  of  increasing  instead  of  restricting  the 
laborers'  consumption  may  be  scientifically  applied  to  the  pre- 
vention of  business  depressions,  it  is  necessary  to  have  some 
means  of  knowing  in  advance  the  first  indications  of  a  business 
depression.  It  will  be  readily  seen  that  if  it  could  be  correctly 
known  that  a  movement  towards  business  depression  had  set  in, 
which  if  not  arrested  would  inevitably  bring  a  period  of  social 
disaster,  all  the  wisdom  of  economists,  statesmen,  and  capitalists 
would  be  applied  to  preventing  its  occurrence,  and  this  could  be 
done  in  two  ways. 


394  Aff  INDUSTRIAL  BAROMETER. 

In  the  first  place,  if  correct  economic  doctrine  prevailed,  efforts 
would  at  once  be  redoubled  in  ajl  manufacturing  countries  to  use 
every  known  legislative,  personal,  social,  and  industrial  means  of 
augmenting  consumption  among  the  masses.  This  would  involve 
efforts  to  raise  the  laborer's  standard  of  living,  which  of  course 
means  an  improvement  in  his  social  condition.  If  such  efforts 
were  made  in  all  machine-using  countries  as  soon  as  the  symp- 
toms of  an  approaching  depression  appeared,  it  could  always  be 
weakened  and  in  many  cases  obviated. 

In  the  second  place,  if  the  consumption  of  the  masses  in  the 
various  countries  could  not  be  increased  sufficiently  to  offset 
a  threatened  diminution  in  the  market,  the  depression  could  be 
largely  mitigated  by  a  movement  of  capital.  As  soon  as  it  was 
definitely  known  that  the  relative  diminution  of  the  market  had 
set  in,  while  established  industries  could  not,  without  injury,  cur- 
tail their  production,  the  investment  of  new  capital  could  and 
would  be  curtailed.  By  curtailing  investments  sufficiently  in 
advance  much  new  capital  would  be  saved,  and  the  shock  to 
established  industries  would  be  greatly  reduced. 

Moreover,  as  business  depressions  generally  arise  from  a  dis- 
parity between  consumption  and  production  in  certain  lines  of 
commodities,  a  proper  knowledge  of  business  phenomena  would 
indicate  in  precisely  what  line  of  industry  the  disturbance  existed, 
and  thus  enable  a  more  economic  direction  to  be  given  to  new 
investments.  By  this  means  much  of  the  capital  that  in  such 
periods  is  wasted  in  America,  England,  France,  and  Germany 
might,  and  often  would,  be  made  to  render  a  service  to  civiliza- 
tion by  developing  the  social  resources  of  South  America,  India, 
China,  and  other  non-manufacturing  countries.  Is  it  possible 
then  to  establish  such  an  industrial  barometer ;  is  there  any 
means  by  which  the  early  symptoms  of  a  business  depression 
can  be  surely  indicated  ?  I  think  there  is. 

Although  the  first  symptom  of  a  business  depression  is  the 
failure  of  the  producer  to  find  a  profitable  market  for  his  whole 
product,  this  may  occur  from  causes  which  do  not  necessarily 
indicate  a  depression  in  business.  A  change  of  fashion  for 
example,  or  the  substitution  of  a  superior  for  an  inferior  product 
.  through  the  use  of  better  methods,  may  produce  that  effect  in  a 
specific  industry.  In  that  case  however,  the  dulness  in  the  old 


STATISTICS    OF  IDLENESS.  395 

industry  would  be  practically  offset  by  the  briskness  in  the  new. 
Such  a  disturbance  therefore  will  only  be  a  temporary  perturba- 
tion incident  to  the  movement  of  capital  and  labor  from  one 
industry  to  another,  and  might  indeed  be  a  sign  of  business  pros- 
perity rather  than  adversity.  But  there  is  one  fact  in  the  indus- 
trial world  which  infallibly  indicates  an  approaching  business 
depression,  namely,  enforced  idleness.  There  are  many  ways  in 
which  enforced  idleness  may  be  produced  in  machine-using 
countries,  e.g.,  by  the  immigration  of  laborers  from  non-machine- 
using  countries,  by  discharges  through  the  use  of  labor-saving 
machinery,  or  by  the  suspension  of  industry  consequent  upon  a 
declining  market.  But  from  whatever  cause  or  number  of  causes 
enforced  idleness  arises,  unless  it  is  arrested,  an  industrial 
depression  is  inevitable. 

It  is  equally  certain  that  nothing  can  produce  a  business  de- 
pression of  serious  proportions  which  does  not  create  enforced 
idleness  ;  indeed,  so  long  as  the  laborers  are  all  employed  a  busi- 
ness depression  is  practically  impossible.  Therefore,  while 
enforced  idleness  may  not  be  the  initial  cause  of  business 
depressions,  it  is  one  of  the  earliest  and  most  infallible  indica- 
tions of  it.  Since  a  knowledge  of  the  phenomena  is  a  necessary 
prerequisite  to  scientific  action,  the  first  practical  step  toward 
prevention  of  business  depressions,  is  the  collection  of  statistics 
of  enforced  idleness.  Nor  would  this  be  a  difficult  task,  since 
the  machinery  for  collecting  industrial  data  is  now  fairly  well 
established  in  most  civilized  countries.  Statistics  of  enforced 
idleness  not  being  of  an  inquisitorial  nature,  there  could  be 
no  valid  objection  to  their  collection,  especially  as  no  class  in 
the  community  would  have  any  motive  for  withholding  the 
information.  In  order  that  these  statistics  may  have  the  utmost 
utility,  the  investigation  should  be  authoritative,  universal,  and 
frequent. 

To  make  the  investigation  authoritative,  it  should  be  under- 
taken by  the  state.  Moreover,  it  is  a  work  which  peculiarly  be- 
longs to  the  government,  because  it  is  of  universal  importance, 
and  can  be  performed  more  extensively,  efficiently,  and  eco- 
nomically by  the  state  than  by  the  individual,  especially  in  the 
less  civilized  countries.  To  give  reliability  to  the  data,  the  in- 
vestigation should  be  as  extensive  as  the  factory  system,  includ- 


396  NECESSITY  OF  FREQUENT  DATA. 

ing  at  least  America,  England,  France,  Germany,  Belgium, 
Switzerland,  Austria,  Italy,  and  Spain. 

These  statistics  should  also  be  collected  as  frequently  as  pos- 
sible, not  less  than  once  a  year,  and  half-yearly  or  quarterly 
would  be  even  better.  Frequency  of  collection  is  one  of  the  most 
essential  requisites  of  idleness  statistics,  because  it  is  only  by 
a  frequent  collection  of  facts  that  the  symptoms  of  an  on-coming 
industrial  depression  can  be  observed  in  its  early  stages  and 
hence  the  most  efficient  means  of  prevention  adopted. 

Such  a  body  of  data  would  furnish  an  inductive  basis  for  the 
scientific  application  of  economic  principles  to  market  phe- 
nomena, besides  being  invaluable  in  the  treatment  of  all  other 
phases  of  the  social  question.  While  it  is  not  pretended  that 
business  depressions  can  be  summarily  abolished,  it  is  indisputable 
that  with  full,  frequent,  and  reliable  statistics  of  enforced  idleness 
in  all  machine-using  countries,  together  with  sound  views  regard- 
ing the  economic  relation  of  the  laborers'  consumption  to  the 
market,  a  great  step  would  be  taken  towards  their  diminution  and 
ultimate  elimination. 


CHAPTER  VI. 
COMBINATION  OF  CAPITAL. 

IT  is  a  peculiar  feature  of  the  industrial  history  of  society  that 
every  movement  towards  concentration  or  more  complex  associa- 
tion of  industrial  forces  has  always  been  viewed  with  alarm,  and 
has  had  to  encounter  serious  opposition  from  the  community. 
The  landed  aristocracy  saw  with  dismay  the  rise  and  growth  of 
the  mercantile  class  from  the  fifteenth  to  the  eighteenth  century, 
and  accordingly  used  all  their  social  and  political  power  to  harass 
and  hinder  the  development  of  what  to  them  contained  naught  but 
evil  for  society. 

With  the  introduction  of  the  spinning-jenny  in  the  eighteenth 
century,  this  social  alarm  was  taken  up  by  the  hand  spinners. 
Their  horror  and  indignation  at  the  idea  of  a  machine  spinning 
eight  threads  where  they  could  only  spin  one  were  such  that  they 
ransacked  the  home  of  Hargreaves,  broke  his  machines,  and  drove 
him  from  his  native  county  for  inventing  it.  A  similar  alarm  was 
raised  in  the  first  quarter  of  the  present  century  by  the  hand- 
loom  weavers  against  the  introduction  of  the  power-loom,  and 
they  went  from  town  to  town  destroying  the  steam-driven  ma- 
chines. The  small  factory  owners,  who  had  encountered  the 
violence  of  the  hand  laborers,  subsequently  raised  a  similar 
alarm  against  the  corporation,  and  now  small  corporations, 
individual  factory-owners,  laborers,  and  non-commercial  classes 
all  join  in  raising  a  similar  alarm-cry  against  trusts,  syndicates, 
and  other  corporate  combinations. 

Perhaps  the  most  remarkable  feature  in  the  attitude  of  the 
public  towards  industrial  combination  is  their  disregard  for  the 
lessons  of  history.  The  fact  that  in  almost  every  instance  the 
opposition  to  new  forms  of  industrial  organization  has  been  a 

397 


398  IMPORTANCE   OF  CORRECT   VIEWS. 

mistaken  resistance  to  what  finally  proved  to  be  a  permanent 
benefit,  seems  to  have  almost  no  modifying  influence  upon  their 
belligerent  attitude.  The  opposition  to  trusts  to-day  is  scarcely 
less  intense  than  was  that  against  the  machines  of  Hargreaves 
and  Arkwright  a  century  ago.1 

A  very  little  reflection  will  show  that  -this  opposition  to  capi- 
talistic concentration  is  as  uneconomic  and  impolitic  as  is  the 
crusade  of  capitalists  against  the  combination  of  labor,  and  for 
substantially  the  same  reason.  The  fallacy  underlying  both  these 
positions  is  the  assumption  that  an  improvement  in  the  con- 
dition of  either  is  obtained  at  the  expense  of  the  other.  The 
capitalist  is  opposed  to  labor-unions  because  he  believes  that  a 
rise  of  wages  involves  a  fall  of  profits  ;  and  the  public  oppose 
the  combination  of  capital  because  they  believe  that  the  large 
profits  of  a  successful  corporation  are  necessarily  obtained  at  the 
expense  of  the  laborer  and  the  consumer. 

In  the  light  of  the  economic  law  of  prices,  surplus,  and  wages, 
-as  heretofore  presented,  the  fallacy  of  such  an  attitude  becomes 
apparent.  When  we  once  realize  that  profit  is  not  added  to  the 
consumers'  price,  but  that  it  represents  a  surplus  produced  by 
the  use  of  superior  instruments  and  natural  forces,  it  is  clear  that 
the  wealth  of  the  capitalist  is  not  drawn  from  the  incomes  of  the 
other  classes  in  the  community,  but  from  nature.2  And  so  with 
the  capitalist  ;  when  he  understands  that  a  rise  in  wages  is  not  a 
permanent  tax  upon  him,  but  is  ultimately  replenished  through  an 
increased  product — hence,  like  his  own  profit,  is  not  drawn  from 
his  fellow-man,  but  from  nature, — the  ground  of  his  opposition 
to  labor  combinations  will  disappear.  Since  neither  the  employ- 
ing nor  laboring  class  can  permanently  improve  its  condition  by 
impairing  that  of  the  other,  but  only  by  increasing  the  product 
of  nature,  it  will  be  obvious  that  neither  one  has  any  thing  to  gain 
by  suppressing  the  combination  of  the  other  ;  but,  on  the  con- 
trary, if  combination  will  increase  their  economic  power,  every- 
body has  an  interest  in  extending  and  strengthening  such 
combination. 

1  In  1888  a  bill  was  introduced  into  Congress  proposing  to  levy  a  tax  of  40 
per  cent,  on  the  products  of  trusts.  In  1889  two  other  bills  were  introduced 
into  the  United  States  Senate,  practically  making  trusts  criminal  conspiracies. 

s  Chapter  on  "  Prices." 


TWO  KINDS  OF  WEALTH.  399 

Without  stopping  to  consider  whether  or  not  the  trust  form  of 
combination  is  superior  to  any  other,  it  may  be  laid  down  as  a 
fundamental  principle  demonstrated  by  the  history  of  industrial 
evolution,  that  the  combination  of  capital  is  indispensable  to 
economic  progress.  This  consists  in  cheapening  wealth  as  com- 
pared with  labor.  Capital  and  labor  being  the  only  two  factors 
which  enter  into  the  cost  of  production,  it  follows  that  wealth 
can  be  cheapened  only  by  increasing  the  productive  capacity  of 
capital.  It  is  a  fact  too  obvious  and  universal  to  need  discussing, 
that  an  increase  in  the  productive  efficiency  of  capital  is  obtained 
by  means  of  greater  specialization  and  concentration,  which  in- 
creases as  civilization  advances.  Of  this,  every  successful  factory, 
railroad,  and  steamship  enterprise  is  a  demonstration. 

This  much  will  be  conceded  by  the  most  ill-informed  anti- 
combinationist.  But  the  objection  commonly  urged  is  that  the 
gain  resulting  from  this  economy  in  production  mainly  accrues 
to  a  small  class.  It  is  insisted  that  this  tends  to  create  a  double 
evil,  by  at  once  promoting  industrial  monopoly  and  political  des- 
potism. They  assure  us  that  wherever  wealth  is  accumulated  in 
the  hands  of  a  few,  the  poverty  of  the  people,  political  corruption, 
and  private  immorality  increase,  and  that  intellectual,  political, 
and  national  decay  inevitably  set  in.1  Although  few  arguments 
have  more  effect  upon  the  public  mind  than  this,  there  are  none 
that  reveal  a  greater  lack  of  economic  insight.  It  proceeds  upon 
the  assumption  (i)  that  all  accumulation  of  wealth  in  the  hands 
of  a  limited  class  is  injurious  to  the  welfare  of  the  community, 
and  (2)  that  the  concentration  of  capital  necessarily  destroys 
competition. 

i.  If  we  bear  in  mind  the  economic  distinction  between  con- 
sumable and  productive  wealth  or  capital  already  referred  to,  we 
shall  have  little  difficulty  in  seeing  the  error  of  this  proposition. 
Whether  or  not  the  accumulation  of  wealth  in  a  few  hands  will 
be  beneficial  or  injurious  to  society,  will  entirely  depend  upon 
whether  it  is  consumable  wealth  or  capital  that  is  accumulated. 

No  one  acquainted  with  the  subject  will  for  a  moment  contend 
that  concentration  of  consumable  wealth  in  the  hands  of  a  small 
class  is  advantageous  to  the  community.  Since  this  class  of 

'See  author's  article  on  "Trusts,"  Political  Science  Quarterly,  vol.  iii.,  pp. 
403-406. 


4OO  CAPITAL    ONLY  IS  ACCUMULATED, 

wealth  only  ministers  to  human  welfare  when  in  the  possession 
of  the  consumer,  it  follows  that  it  can  only  yield  the  largest 
benefit  to  the  community  when  it  is  most  extensively  distributed 
among  the  people.  With  productive  wealth  or  capital,  however, 
the  case  is  exactly  the  reverse  ;  its  functions  being  solely  that  of 
a  productive  instrument,  it  can  minister  to  human  welfare  only 
by  producing  consumable  wealth.  Clearly  therefore,  whether  or 
not  capital  is  any  advantage  to  its  owner  or  to  the  public,  depends 
entirely  upon  whether  it  is  advantageously  used  in  creating  en- 
joyable commodities.  Since  capital  will  only  furnish  consumable 
wealth  to  its  owner  in  proportion  as  he  can  sell  his  products,  its 
possession  can  only  be  advantageous  to  the  capitalist  when  the 
consumable  wealth  it  produces  is  generally  and  liberally  consumed 
by  the  community. 

It  may  be  observed  in  passing  that  there  is  no  tendency  in 
modern  society  to  accumulate  consumable  wealth.  On  the  con- 
trary, the  very  prosperity  of  the  community  depends  upon  the 
constantly  increasing  consumption  of  consumable  wealth.  When 
we  speak  of  the  accumulation  of  millions  in  the  hands  of  a  single 
individual  or  family  to-day,  it  should  be  remembered  that  cap- 
ital and  not  consumable  wealth  is  referred  to.  With  the  excep- 
tion of  a  small  amount  personally  consumed  and  dispersed  in 
charities,  the  large  fortunes  of  the  Vanderbilts,  Goulds,  Astors, 
Rothschilds,  and  other  millionaires  are  productively  employed. 
Indeed,  it  would  be  regarded  as  the  insanity  of  financiering  to 
accumulate  consumable  wealth,  because  the  only  result  of  such 
accumulation  would  be  deterioration  and  loss.  As  shown  in  the 
preceding  chapter,  any  tendency  to  prevent  consumption  from 
keeping  pace  with  production,  which  is  simply  accumulating  con- 
sumable wealth,  surely  leads  to  business  depressions,  and  entails 
inevitably  bankruptcy,  and  often  ruin  upon  the  owners  of  capital. 
Since  capital  can  be  of  no  advantage  to  its  owner  except  when  it 
is  profitably  employed  in  producing  consumable  wealth,  and  since 
it  can  be  so  profitably  employed  when  its  product  is  consumed 
substantially  as  fast  as  it  is  produced,  it  follows,  as  an  economic 
necessity,  that  consumable  wealth  is  most  widely  distributed 
where  productive  wealth  or  capital  is  most  concentrated.  Thus 
we  again  arrive  at  the  oft-repeated  proposition  that  the  prosperity 
of  the  capitalist  finally  depends  upon  the  consumption  of  wealth 
by  the  masses. 


CONCENTRATION  AND   COMPETITION.  40! 

2.  The  second  objection  is  that  combination  of  capital  tends 
to  destroy  competition.  If  this  assumption  be  correct,  the  power 
of  competition  will  necessarily  diminish  as  the  combination  of 
capital  increases.  Whether  or  not  this  has  taken  place  can  be 
determined  only  by  the  facts.  In  order  to  determine  whether  or 
not  effective  competition  increases  or  diminishes  with  combina- 
tion of  capital,  we  have  only  to  ascertain  whether  or  not  prices 
tend  to  press  closer  to  the  line  of  the  cost  of  producing  the  most 
expensive  portion  of  the  general  supply.  Tried  by  this  test,  the 
assertion  that  the  combination  of  capital  necessarily  tends  to 
destroy  competition  will  be  found  to  be  entirely  erroneous. 

There  never  was  a  time  when  economic  combination  was  so 
great  as  it  is  to  day,  nor  was  there  ever  a  time  when  competition 
was  so  fierce  and  unsparing — that  is  to  say,  when  the  margin 
between  the  cost  of  producing  the  dearest  portion  and  the  selling 
price  was  so  small  in  such  a  large  proportion  of  industries.  In- 
deed, it  is  one  of  the  chief  indictments  against  the  capitalistic 
system  of  production  that  it  is  a  "competitive  system."  If  we 
follow  the  combination  of  capital  from  the  hand-loom  weaver 
and  the  spinner  of  a  single  thread  to  the  trust  and  syndicate,  we 
shall  find  that  the  margin  of  profit  per  unit  of  product  has  steadily 
diminished — a  fact  which  every  business  man  knows.  The 
reason  for  this  is  obvious.  For  instance,  when  the  hand-loom 
weaver  could  only  turn  off  forty  yards  of  cotton  cloth  a  week,  a 
margin  of  a  cent  a  yard  would  yield  but  an  insignificant  amount 
of  profit.  The  profit  on  the  product  of  fifty  weavers  would  only 
be  $25  a  week,  whereas  the  same  margin  on  the  product  of  fifty 
weavers  to-day  would  yield  a  profit  of  $1,080  a  week. 

Much  of  the  error  in  this  connection  is  due  to  judging  compe- 
tition from  the  standpoint  of  the  deposed  or  receding  competitor. 
Thus,  when  the  products  of  a  small  factory  undersold  those  of  a 
hand-loom,  judged  from  the  standpoint  of  the  hand-loom  weaver, 
competition  was  destroyed  and  monopoly  established.  Such 
however  was  not  the  case,  as  everybody  now  knows.  What 
really  took  place  was  a  readjustment  of  economic  factors,  made 
necessary  by  the  introduction  of  superior  methods,  which  resulted 
in  transferring  competition  to  a  new  plane,  where  its  effectiveness 
was  greatly  increased.  The  same  was  true  when  the  small  factory 
was  superseded  by  the  corporation,  and  is  true  now  when  the 
corporation  is  superseded  by  the  trust  and  syndicate. 


4O2  THE   CRITERION  OF  COMPETITION. 

It  should  be  remembered  that  the  influence  of  competition 
does  not  depend  so  much  upon  the  number  of  competitors  as 
upon  the  effectiveness  of  competition.  Competitors  may  be  very 
numerous  and  still  competition  be  ineffective,  as  in  the  case  of 
the  hand-loom  weavers.  And  conversely,  competitors  may  be 
few  in  number  and  still  be  very  effective,  as  is  the  case  of  large 
concerns  to-day.  One  Macy  furnishes  more  effective  competi- 
tion than  a  hundred  small  merchants  with  a  few  hundred  dollars 
capital  each.  This  does  not  mean  that  reducing  the  number  of 
competitors  will  necessarily  increase  effective  competition,  but  it 
demonstrates  the  fact  that  high  competition  is  possible  with  a 
small  number  of  competitors.  Indeed,  it  is  the  severity  of  com- 
petition thus  developed  that  has  brought  the  trust  and  other 
forms  of  industrial  confederation  into  existence. 

That  effective  competition  has  thus  increased  with  the  increas- 
ing combination  of  capital,  no  one  acquainted  with  the  subject 
will  dispute,  but  the  alarm  raised  is  ostensibly  for  the  future.  It 
is  upon  what  trusts  may  do,  and  not  upon  what  they  have  done, 
that  the  present  opposition  is  based.  It  is  said  that  the  object  of 
the  trust  is  to  monopolize  the  market.  Even  so  ;  there  is  nothing 
new  in  that.  That  has  been  one  of  the  objects  of  every  other  in- 
dustrial improvement.  What  motive  could  there  be  for  intro- 
ducing better  methods  and  investing  large  capital,  unless  it  would 
give  the  owner  more  advantage  over  existing  competitors.  To 
condemn  an  industrial  institution  because  the  object  of  its  pro- 
moters is  to  undersell  and  supersede  traditional  producers  and 
methods  is  economic  insanity.  It  is  not  the  motive  of  the  capi- 
talist but  the  economic  effect  of  his  action  that  must  be  deter- 
mined in  judging  the  social  utility  of  industrial  methods  and 
institutions.  Whether  the  capitalist  acts  as  an  individual  pro- 
ducer, small  factory  owner,  corporation,  or  trust  ;  whether  he 
produces  cotton  cloth,  shoes,  or  petroleum,  conducts  a  railroad  or 
publishes  a  newspaper,  his  motive  is  substantially  the  same  ; 
namely,  to  obtain  more  wealth — "  to  make  money."  Will  it  pay? 
is  the  question  upon  which  the  doing  or  not  doing  in  every 
sphere  of  industrial  activity  is  determined. 

The  tone  and  politics  of  the  newspapers  are  determined  by 
that  fact  about  as  completely  as  is  the  form  and  quality  of  hats 
and  shoes.  Newspaper  corporations  have  not  invested  hundreds 


ECONOMIC  INCENTIVE.  403 

of  thousands  and  even  millions  of  dollars  in  buildings,  large  and 
fast  presses,  automatic  folders,  foreign  correspondence,  special 
telegrams,  high  salaried  editors  and  reporters,  special  trains  for 
deliveries,  etc.,  merely  for  the  sake  of  furnishing  the  public  with 
ample,  early,  and  reliable  news.  This  has  all  been  developed  by 
the  effort  of  each  to  outdo  his  neighbor  in  the  contest  for  obtain- 
ing public  patronage — the  market.  It  was  only  because  this 
could  not  be  done  without  furnishing  a  larger  or  a  better  paper 
at  the  same  price — which  nothing  but  a  greater  combination  of 
capital  and  superior  methods  made  possible — that  the  immense 
improvements  in  the  daily  paper  have  been  produced.  The  same 
motive  which  has  induced  newspaper  corporations  to  furnish 
a  daily  history  of  the  human  race  for  two  cents,  has  given  us  our 
railroads,  telegraphs,  steamships,  and  other  time-and-space- 
reducing  and  wealth-cheapening  institutions,  of  which  trusts  are 
the  most  recent  form.  And  the  reasons  for  suppressing  one  will 
apply  with  equal  force  to  suppressing  the  others. 

The  opposition  to  the  larger  combinations  of  to-day  will  be 
found  to  have  its  root  in  the  error  which  has  characterized  all 
previous  opposition  to  productive  integrations.  The  averagely 
intelligent  antagonist  to  trusts  will  readily  admit  that  all  the  evil 
predictions  regarding  the  earlier  stages  of  capitalistic  combina- 
tion were  mistaken.  He  will  also  admit  that  the  mistake  consisted 
in  the  failure  to  recognize  the  increasing  competitive  power 
which  the  larger  factory  and  corporation  possessed,  especially 
when  accompanied  by  the  daily  press,  the  telegraph,  and  the  rail- 
roads. The  more  intelligent  now  see  that  a  multiplicity  of  com- 
petitors is  not  necessary  to  effective  competition,  having  learned 
by  experience  that  this  may  result  in  a  great  waste  of  economic 
power  instead  of  a  cheapening  of  commodities,  and  that  compe- 
tition is  quite  as  effective,  and  far  more  economic,  with  a  limited 
number  of  competitors.  While  they  recognize  the  folly  of 
assuming  that  any  diminution  in  the  number  of  competitors  must 
weaken  competition,  they  tenaciously  insist  that  to  permit  the  com- 
bination of  capital  to  increase  until  the  actual  competitors  are  re- 
duced to  zero,  must  destroy  competition.  In  other  words,  they 
insist  that  competition  is  impossible  unless  the  competitors  are 
actually  present  in  the  market. 

The  error  in  this  view  arises  from  overlooking  the  influence  of 


404  POTENTIAL   COMPETITION. 

potential  competition.  If  we  examine  the  subject  from  the 
standpoint  of  modern  phenomena,  we  shall  find  that  there  is 
potential  competition  as  well  as  actual,  and  that  the  economic 
effect  of  potential  competition  increases  as  its  phenomena  grow  in 
complexity.  The  competitive  power  of  capital  will  be  found  to 
ultimately  depend  not  merely  upon  its  actual  presence,  but  upon 
its  known  availability  at  any  given  time  and  place.  Consequently, 
the  more  intelligent  and  economically  powerful  competitors  are, 
the  more  effectual  will  be  their  potential  or  possible  competition, 
and  vice  versa.  For  example  in  the  ante-factory  period,  with 
neither  railroads  nor  telegraphs,  the  only  capital  known  to  be 
available  was  that  visibly  present ;  hence,  none  other  exercised 
any  competitive  influence  in  the  market. 

With  the  development  of  modern  industry  all  this  has  changed. 
Electricity  and  steam  have  so  diminished  time  and  space,  and 
concentration  of  capital  has  so  increased  the  economic  power  of 
the  producer,  that  now  both  capital  and  products  thousands  of 
miles  away  are  economically  available,  and  therefore  exercise  a 
positive  competitive  influence  upon  the  market.  Accordingly  the 
wheat  in  India,  Russia  and  Dakota,  now  exercises  practically  the 
same  competitive  influence  in  Liverpool  as  does  that  which  is 
stored  there,  and  solely  because  it  is  known  to  be  actually  avail- 
able for  the  Liverpool  market  if  the  price  rises  high  enough  to 
warrant  its  movement  thither.  Thus  through  improved  means  of 
communication  and  transportation,  products  in  the  most  remote 
parts  of  the  earth  exercise  a  competitive  influence  upon  a  market 
they  may  never  actually  enter,  simply  because  it  is  known  that  they 
can  be  there  if  needed. 

What  is  true  of  commodities  is  even  more  true  of  fixed  capital, 
and  as  will  readily  be  seen,  potential  competition  or  the  power  of 
the  possible  competitor  increases  as  the  combination  of  capital 
enlarges.  Capital  is  proverbially  one  of  the  most  sensitive  things 
in  the  world.  Although  it  will  take  great  risks  for  large  profits  it 
will  timidly  recede  at  the  sight  of  loss.  There  are  many  reasons 
why  large  combinations  are  more  amenable  to  the  influence  of 
potential  competition  than  small  ones.  Although  more  powerful, 
they  yet  have  more  at  stake.  The  very  fact  that  capital  is  cow- 
ardly makes  it  careful,  and,  since  fear  of  loss  next  to  hope  of  gain 
is  the  most  powerful  motive  which  governs  its  movement,  the  first 


INABILITY  OF  LARGE   CAPITAL.  40$ 

condition  to  be  secured  is  safety  against  loss.  The  greater  the 
concentration  of  capital,  the  more  serious  and  difficult  this  be- 
comes. 

It  is  a  principle  in  economic  progress  that  as  the  mobility  of 
consumable  wealth  increases  that  of  productive  wealth  diminishes, 
because  the  very  means  which  promote  the  easy  transfer  of  prod- 
ucts involve  a  greater  fixity  of  capital.  In  proportion  as  capi- 
tal loses  its  mobility,  the  necessity  of  maximizing  its  economic 
utility  in  its  existing  form  increases  ;  and  when  the  concentration 
is  very  great,  that  becomes  the  only  means  of  preserving  it  from 
deterioration.  Take,  for  example,  the  Vanderbilt  railroad  system 
with  its  investment  of  $170,000,000  and  60,000  employe's;  this 
is  excellent  property  so  long  as  it  can  be  economically  employed 
for  its  present  purpose.  If,  however,  it  should  be  superseded  by 
a  superior  system  of  transportation,  the  greater  part  of  that  prop- 
erty would  be  worthless,  the  capital  invested  being  absolutely 
non-transferable.  Such  parts  of  the  equipment  as  the  rails,  road- 
bed, engines,  cars,  and  stations  (rep resenting  nearly  $150,000,000) 
which  now  have  a  full  value  as  finished  products,  would  in  that 
case  practically  be  reduced  to  the  value  of  old  iron.  Three 
fourths  of  their  value  would  vanish  as  completely  as  if  the  prop- 
erty were  reduced  to  ashes. 

If  we  bear  in  mind  the  fact  that  capital  is  simply  an  economic 
instrument  whose  decay  can  only  be  prevented  by  maintaining  its 
productive  utility,  it  will  be  manifest  that  in  proportion  as  its  con- 
centration increases,  the  very  life  of  capital  depends  more  and 
more  upon  its  wealth-cheapening  efficiency.  It  will  probably  be 
replied  that  this  may  all  be  true  so  long  as  any  actual  competi- 
tors remain,  but  when  the  combination  of  capital  has  reached  a 
point  where  the  production  of  a  given  commodity  is  practically 
in  the  hands  of  a  single  concern  this  restraint  will  disappear,  and 
prices  can  be  indefinitely  increased  to  suit  a  monopoly.  Here  is 
where  the  error  of  ignoring  the  influence  of  potential  competition 
again  shows  itself.  The  very  fact  that  capital  cannot  take  wings 
and  fly  away,  but  is  compelled  to  work  where  it  is  or  perish,  gives 
potential  competition  its  greatest  influence  ;  that  is  to  say,  gives 
the  non-employed  or  less  remuneratively  employed  capital  its 
maximum  price-reducing  influence  It  should  never  be  forgot- 
ten that  in  a  progressive  society,  where  alone  the  greatest  combi- 


406  EFFECT  OF  NO-PROFIT  CAPITAL. 

nation  of  capital  is  possible,  two  things  are  more  or  less  con- 
stantly occurring :  (i)  the  accumulation  of  wealth  available  for 
productive  purposes,  which  increases  as  the  margin  of  profit 
rises  ;  (2)  the  reduction  of  capital  to  no-profit  uses,  which  in- 
creases as  superior  productive  methods  and  management  are 
adopted.  From  these  two  causes,  which  are  as  universal  and 
constant  as  social  progress,  capital  seeking  remunerative  employ- 
ment is  constantly  increasing. 

Hence  this  idle  or  unremunerative  capital  has  the  same  eco- 
nomic effect  upon  productive  capital  that  the  wheat  in  India  or 
Russia  has  upon  that  in  Liverpool  ;  it  is  waiting  for  an  opportu- 
nity. In  the  absence  of  legal  restrictions,  nothing  will  prevent 
this  anxiously  waiting  capital  from  actually  entering  the  field 
except  keeping  the  margin  of  profit  too  small  to  warrant  the  risk. 
This  of  course  involves  the  lowering  of  prices  commensurately 
with  the  diminished  cost  of  production,  which  is  all  the  fiercest 
actual  competition  can  do.  It  may  be  said  that  if  new  capital 
enters  the  field  a  monopoly  will  buy  it  up.  But  that  takes  more 
capital  ;  a  million  dollars  invested  in  buying  up  a  competitor  is 
so  much  added  to  the  cost  of  production,  and  directly  dimin- 
ishes profit.  Clearly  the  million  thus  invested  might  just  as  well 
be  surrendered  to  the  community  in  lower  prices.  That  this 
would  be  a  safer  and  more  economic  method  is  manifest :  (i) 
because  lowering  the  price  tends  to  increase  the  consumption  of 
the  commodity,  extend  the  market,  and  make  a  still  smaller 
margin  of  profit  yield  a  greater  aggregate  return  ;  (2)  because  a 
new  competitor  is  an  unknown  quantity,  and  may  prove  too  strong 
to  be  bought  up,  in  which  case  existing  producers  may  be  driven 
from  the  field,  or  have  their  profits  reduced  to  zero.  Since  the 
least  danger  to  existing  corporations  lies  in  keeping  out  rather  than 
buying  out  new  competitors,  and  since  reducing  prices  alone  can 
do  this,  it  follows  that  the  larger  a  corporation  the  greater  is  its 
interest  in  keeping  prices  low  enough  not  to  induce  the  organiza- 
tion of  counter-enterprises  to  jeopardize  its  existence.  It  is  thus 
evident  that  with  economic  freedom,  the  potential  competition  of 
available  capital  is  essentially  the  same  as  if  a  new  competitor 
were  actually  on  hand.  The  fact  that  he  may  come  any  day  has 
practically  the  same  competitive  influence  as  if  he  had  come, 
because  to  keep  him  out  requires  the  same  kind  of  price-reducing 


LIMIT  OF  CONCENTRATION.  407 

effort  that  would  be  necessary  to  drive  him  out.  Since  the  former 
always  involves  less  risk  and  generally  less  cost  than  the  latter,  it 
is  most  likely  to  be  adopted,  in  proportion  as  an  intelligent  under- 
standing of  economic  movement  prevails. 

It  is  a  great  mistake  to  suppose  that  the  investment  of  large 
capitals  is  specially  desirable  to  the  capitalist.  On  the  contrary 
he  avoids  this  as  much  as  possible,  always  preferring  to  get  along 
with  the  minimum  rather  than  to  use  the  maximum  capital  to 
accomplish  any  given  result.  Indeed  to  accomplish  the  greatest 
result  with  the  least  investment  is  the  very  art  of  economic  pro- 
duction. Moreover,  with  every  increase  in  the  size  of  invest- 
ments capital  becomes  more  fixed,  involved,  and  unwieldy,  redu- 
cing margins  and  making  it  possible  for  great  losses  to  result 
from  very  slight  mistakes  ;  consequently  greater  expertness  of 
management  becomes  necessary  in  every  department  of  a  colos- 
sal enterprise.  Larger  investments  increase  the  risk  of  the  capi- 
talist and  further  outlay  will  be  adopted  only  under  the  spur  of 
some  economic  inducement — such  as  avoiding  a  loss,  replenish- 
ing a  diminished  profit,  or  perhaps  obtaining  a  still  larger  profit. 

The  economic  movement  of  capital  being  governed  by  the  law 
of  increasing  returns,  it  follows  that  capital  will  not  (except  by 
mistake)  go  into  new  industries,  unless  it  can  obtain  a  greater 
return  per  unit  than  it  is  already  receiving.  So,  too,  of  concen- 
tration or  combination  ;  capital  will  continue  to  concentrate  only 
so  long  as  it  can  obtain  an  increasing  return  per  unit  by  so  doing. 
When  that  ceases  to  be  possible  the  motive  for  combination  dis- 
appears ;  and  when  the  point  of  diminishing  returns  is  reached 
self-interest  is  positively  against  further  combination.  That  there 
is  a  point  in  any  given  state  of  society  at  which  further  concentra- 
tion of  capital  will  fail  to  yield  increasing  returns,  and  at  which 
diminishing  returns  set  in,  cannot  be  doubted.  Whether  or  not 
this  point  will  be  reached  before  the  actual  competing  producers 
in  the  same  market  disappear  cannot  now  be  determined.  Nor  is 
this  of  any  real  importance  since  concentration  will  continue  only 
so  long  as  it  will  give  increasing  returns  to  the  capitalist  and 
cheaper  products  to  the  consumer.  There  is  therefore  no  eco- 
nomic reason  why  the  state  should  do  any  thing  to  limit  the  con- 
centration of  capital,  since  that  will  be  arrested  by  the  capitalist 
when  it  ceases  to  economize  production  and  cheapen  the  wealth 


408 


EFFECT  OF  CONCENTRATED   CAPITAL. 


of  the  community.  In  other  words,  in  the  absence  of  legal  re- 
strictions economic  law  is  more  effectual  in  determining  the  equi- 
table movement  of  capital  than  statute  law  can  possibly  be. 

That  this  has  been  the  general  effect  of  the  concentration  of 
capital  during  the  present  century  is  abundantly  proven  by  the 
fall  of  prices  and  rise  of  wages  as  shown  by  the  increased  pur- 
chasing power  of  a  day's  labor  during  that  period.  The  follow- 
ing table  shows  the  average  weekly  wages  and  their  relative 
purchasing  power  in  200  staple  articles  for  1860  and  1885  : ' 


i8( 

)O. 

i8i 

*5. 

INDUSTRIES. 

Number  of 
branches. 

Weekly 
wages. 

Purchasing 
power. 

Weekly 
wages. 

Purchasing 
power. 

Percentage 
of  increase. 

Arms  and  ammunition    

12 

&I4.   IS 

IOO 

iiiil'}  IS 

IIQ 

IQ 

Artisans'  tools  

IO 

8  4S 

IOO 

II  ZlS 

74 

Boots  and  shoes  

17 

II  4.2 

IOO 

10  63 

1  2O 

2O 

Carriages  and  wagons  

7 

IO  47 

IOO 

12  8O 

IC7 

1:7 

Clothinf  

II 

8  26 

IOO 

8  19 

127 

27 

Cotton  goods  

86 

6  50 

IOO 

6  4S 

128 

28 

Flax,  hemp,  and  jute  

ie 

4.  OT 

IOO 

6  46 

1  80 

80 

Leather  

8 

IO  OI 

IOO 

II.  OI 

141 

41 

Liquors  

8 

IO  ~T\ 

IOO 

11.7-2 

141 

41 

Machinery  

IQ 

7  OO 

IOO 

II  7S 

IQ2 

02 

Metallic  goods  

IO 

Q  O7 

IOO 

II.  2S 

161 

6l 

Musical  instruments  

8 

IO.Q4 

IOO 

12.  Q4 

152 

52 

Paper  goods           

18 

8  63 

IOO 

7  6l 

114 

14 

Print  and  dye-goods  

26 

Q  QO 

IOO 

7.67 

IOO 

Silk  and  silk  goods  

Q 

R.QI 

IOO 

6.QI 

167 

67 

7 

8  OI 

IOO 

12  OI 

IQI 

Q7 

58 

e.*8 

IOO 

7.QO 

180 

8q 

Worsted  goods  

22 

6.12 

IOO 

6.12 

I2Q 

29 

Carpetings  

25 

6.62 

IOO 

6.62 

129 

29 

Building  trades  

IO 

0.87 

IOO 

14.  QQ 

196 

96 

Average  (Total 

386) 

8.64 

IOO 

9.88 

150 

5° 

This  tendency  is  still  more  conclusively  shown  by  the  fact  that 
the  fall  in  prices  has  been  greatest  in  those  commodities  in 
whose  production  there  has  been  the  greatest  concentration  of 

1  The  \vages  in  the  above  table  represent  386  occupations  in  Massachusetts  ; 
the  data  for  iS6o  will  be  found  in  the  Report  of  the  Labor  Bureau  for  1884,  and 
those  for  1885  in  the  Census  Report  for  1885  (volume  on  Manufactures). 


EFFECT  OF  TRUSTS  ON  PKICES. 


409 


capital,  as  will  be  seen  by  the  accompanying  table,  which  shows 
the  purchasing  power  of  weekly  wages  in  commodities  furnished 
by  trusts  and  other  colossal  combinations  for  1860  and  1890  : 


Purchasing  power  of  weekly 
wages. 

1860. 

1890. 

Percentage 
of  increase. 

Cotton-seed  oil,  number  of  gals.  .  . 
Sugar  refined,  number  of  Ibs  

iSyV 

QOTAA 

2QT9A 
ie.2 

66 
67 

Freight  New  York  to  Chicago. 
First  class  

530        Ibs 

1317        Ibs 

148 

Second  class  

O^d 

1520           ' 

T12 

Third  class  

822 

1076            f 

176 

Fourth  class  

I3OQ 

2822            ' 

lie 

Telegraph  messages,  number  of.  . 
Pretroleum  refined,  number  of  gals. 

8AV 

I07A9TT 

3iT6Tnr     ' 
io86flfr     ' 

283 
907 

It  will  be  seen  from  the  above  tables  that,  although  the  general 
purchasing  power  of  wages  has  greatly  increased  since  1860,  the 
increase  has  been  very  much  greater  in  those  industries  where 
the  greatest  concentration  of  capital  has  taken  place.  Taking 
200  staple  articles  together,  the  increase  is  53^0  Per  cent., 
whereas,  in  cotton-seed  oil,  it  is  66  per  cent.  ;  in  sugar,  67  per 
cent.  ;  in  transportation  (all  classes)  together,  it  is  142  per  cent.  ; 
in  telegraphy,  283  per  cent.  ;  and  in  petroleum,  907  per  cent.  It 
should  be  observed  in  this  connection  that  the  figures  for  cotton- 
seed oil  only  extended  to  1878,  and  that  more  than  \^  of  the 
entire  fall  in  the  price  has  taken  place  since  the  trust  was  formed 
in  1884  3  ;  and  also  that  the  fall  in  the  price  of  sugar  during  the 
last  thirty  years  has  all  taken  place  since  January,  1882.' 

It  may  be  said  that  the  point  has  not  yet  been  reached  where 
actual  competitors  are  reduced  to  none,  and  therefore  the  cor- 
rectness of  the  theory  here  presented  cannot  be  inductively 
verified.  It  is  true  that  there  are  very  few  industries  in  which  the 
actual  competitors  are  not  still  relatively  numerous.  Nor  is  there 
any  sufficient  ground  for  concluding  that  the  time  will  ever  come 

1  The  figures  in  this  table  are  for  1878. 
•  These  figures  are  for  1866. 

3  In  1878  the  price  of  standard  summer  oil  was  47^0*5  cents  a  gallon  ;  in  1883 
it  was  47y<ny  cents  a  gallon  ;  it  is  now  (September  27,  1890)  33  cents  a  gallon. 

4  The  average  price  of  refined  sugar  in  1860  was  9^  cents  a  pound.     In  Janu- 
ary, 1882,  it  was  g|,  and  in  July  9T55  cents  a  pound. 


4IO  STANDARD   OIL    TRUST. 

when  this  will  not  be  the  case  in  a  great  majority  of  industries, 
but  that  in  some  industries  production  may  practically  be  in  the 
hands  of  a  single  concern  is  certainly  within  the  range  of  possi- 
bility, since  we  have  at  least  one  instance  of  this  kind  already  in 
the  Standard  Oil  Trust.  This  concern  comes  nearer  to  having 
complete  control  of  a  given  product  than  perhaps  any  other  en- 
terprise in  the  world.  When  petroleum  was  refined  by  small  con- 
cerns, it  was  very  poor  in  quality  and  very  high  in  price.  In 
1861,  when  crude  oil  was  only  iT2o3?r  cents  a  gallon,  refined  oil 
was  6iT6/j;  cents  a  gallon,  making  the  cost  of  refining  and  trans- 
portation 6oTyg-  cents  a  gallon.  By  concentration  of  capital  and 
the  improved  processes  of  ten  years,  the  price  of  refined  oil  was 
reduced  to  24^^  cents  a  gallon.  The  oil  was  still  both  poor  and 
dangerous  to  use,  casualties  from  exploding  lamps  being  of  daily 
occurrence.  This  was  practically  as  far  as  small  concerns  were 
able  to  carry  the  light-improving  and  price-reducing  processes, 
and  although  the  quality  was  poor  and  the  price  high  the  re- 
finers' profits  were  small. 

In  1872  the  refiners  formed  a  combination  called  the  Standard 
Oil  Company,  which  however  did  not  include  any  considerable 
portion  of  the  refiners  until  1874,  but  by  this  concentration  of 
productive  power  they  were  able  to  introduce  various  improve- 
ments otherwise  impracticable.  For  example,  before  the  organi- 
zation of  the  Standard  Oil  Company,  crude  oil  had  to  be  trans- 
ported from  the  wells  to  the  market  in  small  quantities,  in 
barrels,  tanks,  etc.  After  the  organization  of  that  company, 
various  methods  of  reducing  the  cost  of  transporting  oil  were 
adopted,  which,  about  1879,  resulted  in  substituting  for  the  rail- 
road and  other  means  of  transportation,  a  general  pipe  line  taking 
oil  from  the  various  wells  and  delivering  it  directly  to  the  market. 
There  are  now  two  such  lines  reaching  New  York,  with  the  capac- 
ity of  25,000  barrels  a  day.  There  is  also  one  such  line  to  the 
cities  of  Philadelphia,  Baltimore,  Buffalo,  Cleveland,  and  Pitts- 
bftrgh,  and  one  is  being  constructed  to  Chicago.  This  was  an 
undertaking  absolutely  beyond  the  power  of  any  of  the  smaller 
corporations.  Nothing  short  of  a  colossal  combination  was  ade- 
quate to  the  task,  which  resulted  in  a  saving  of  over  66  per 
cent,  of  the  cost  of  transportation  alone. 

Similar  savings  in  other  departments,  such  as  the  manufacture 
of  their  various  supplies,  have  been  accomplished  by  virtue  of 


ITS  ECONOMIC  METHODS. 


411 


the  consolidation.  Thus  in  1872  barrels  cost  $2. 35  each  ;  to-day 
the  trust  manufactures  them  for  its  own  use  at  $1.25  each,  a  re- 
duction of  47  per  cent.,  or  a  saving  of  nearly  $4,000,000 
a  year.  In  the  cost  of  manufacture  of  tin  cans,  a  saving  of  50 
per  cent,  has  been  made,  the  price  having  been  reduced  from  30 
to  15  cents  per  can  since  1874.  As  this  company  uses  about 
30,000,000  tin  cans  a  year,  that  makes  a  saving  of  over  $4,500,000 
annually.  The  same  is  true  of  wooden  cases,  which  in  1874  cost 
20  cents  each,  while  the  company  now  manufactures  them  for 
itself  at  a  cost  of  13  cents  each,  being  an  annual  saving  of  about 
$1,250,000.  Similar  economies  have  been  established  in  the  man- 
ufacture of  tanks,  stills,  pumps,  and  other  things  used  in  the  busi- 
ness. As  a  result  of  all  this  the  price  of  the  refined  oil  was 
reduced  in  eight  years,  1872-1879,  from  24T\4g-  cents  to  Syf^-cents 
a  gallon,  or  66T6ffV  per  cent.  Moreover,  in  addition  to  thus  low- 
ering the  price,  the  quality  of  the  oil  was  greatly  improved  by 
entirely  eliminating  the  explosive  elements  and  increasing  its 
illuminating  quality. 

By  these  improvements  in  quality  and  reductions  in  price,  the 
market  for  oil  was  greatly  extended,  and  in  1880  a  still  further 
combination  of  capital  was  undertaken  and  the  trust  formed. 
This,  as  before  remarked,  included  nearly  all  the  leading  refiners 
in  this  country,  and  therefore  actual  competition  in  this  business 
was  minimized.1  Under  these  monopolistic  conditions,  accord- 
ing to  the  usual  predictions,  the  price  of  oil  might  have  been  ex- 
pected to  rise,  but  the  fact  is  that  it  continued  to  fall  as  will  be 
seen  by  the  following  table  : 


Year. 

Price  of  crude  oil  per  gallon 
at  wells. 

Price  per  gallon  of  refined  oil 
for  export. 

1880 

2.24 

9.12 

1881 

2.30 

8.05 

1882 

1.87 

7.41 

1883 

2.52 

8.14 

1884 

1.99 

8.28 

1885 

2.  II 

7.86 

1886 

1.69 

7.07 

1887 

1-59 

6.75 

1888 

2.07 

7-50 

1889 

2.42 

7-25 

1  The  Standard  Oil  Trust  refines  about  75  per  cent,  of  all  the  oil  in  this  country. 


412  EFFECT  OF  UTILIZING  WASTE. 

.  It  will  be  observed  that  this  fall  in  the  price  of  refined  oil 
is  none  of  it  due  to  a  fall  in  the  price  of  the  crude  oil  which  re- 
mained practically  unchanged.  This  is  the  more  surprising  be- 
cause improvements  in  the  means  of  transportation  and  other 
processes  had  already  been  practically  maximized,  and,  as  will 
be  readily  observed,  the  possibilities  for  economy  are  very  much 
less  when  the  price  has  reached  9  cents  than  when  it  was  24 
cents  a  gallon.  Manifestly  if  the  community  is  to  receive  in 
reduced  prices  the  advantage  of  the  limited  improvements  that 
remain  possible  and  profits  are  to  be  maintained,  economies 
must  take  a  new  direction.  And  this  is  exactly  what  has  taken 
place. 

During  the  last  few  years,  and  especially  since  the  organization 
of  the  trust,  a  series  of  improvements  has  been  developed  by 
means  of  which  what  had  been  previously  wasted  is  now  con- 
verted into  valuable  commodities.  In  the  refining  of  petroleum, 
after  the  illuminating  oil  is  abstracted,  there  is  a  large  residuum 
left  which  hitherto  had  only  a  fuel  value.  This  formerly  wasted 
material  is  now  converted  into  naphtha,  lubricating  oils,  paraffine 
wax,  etc.  In  order  to  do  this,  however,  expensive  machinery  and 
manufactories  had  to  be  constructed  expressly  for  the  purpose, 
which  could  only  be  profitably  undertaken  in  connection  with  the 
most  colossal  processes  of  petroleum  refining.  Some  idea  of  the 
extent  of  this  may  be  formed  from  the  fact  that  naphtha  thus  pro- 
duced supplies  more  than  two  thirds  of  the  public  light  of  New 
York  City,  Brooklyn,  and  Jersey  City  because  it  is  cheaper  than 
gas.  The  price  of  paraffine  oil  also  has  been  reduced  by  this 
means  from  22  cents  to  i  ij  cents  a  gallon,  and  has  been  improved 
50  per  cent,  in  its  lubricating  qualities.  In  1875  the  standard 
for  American  paraffine  oil  by  the  commercial  test  viscosity  was 
100  seconds  at  a  temperature  of  70  ;  it  now  tests  150,  and  its  flash 
point,  which  in  1875  was  300,  is  380. 

Moreover,  in  1875,  paraffine  oil  could  not  be  used  for  lubrica- 
ting machinery  without  an  admixture  of  from  20  to  50  per  cent, 
of  animal  oil,  while  to-day  it  can  be  used  without  any  animal  oil. 
This  is  true  of  several  other  lubricants  made  from  petroleum, 
especially  cylinder  oil.  Even  for  railroad  purposes  this  super- 
sedes tallow  and  other  animal  lubricants,  having  the  great  merit 
of  preventing  corrosion  by  keeping  the  metal  surfaces  bright  and 


EFFECT  ON  OTHER   COUNTRIES.  413 

clean.  In  1875  the  price  of  petroleum  cylinder  oil  was  $1.25  per 
gallon  ;  it  is  now  only  35  to  40  cents.  The  price  of  black  lubri- 
cating oils  used  for  railroad  axles  was  15  to  18  cents  a  gallon  in 
1875,  and  to-day  it  is  sold  at  7  and  9  cents.  The  monthly  sales 
of  mineral  lubricating  oils  were  not  more  than  10,000  barrels  in 
1875  ;  they  are  now  nearly  70,000.  Furthermore,  the  animal 
product  of  paraffine  wax  from  petroleum  was  less  than  6,000  tons 
in  1870,  and  this  year  the  product  is  estimated  at  fully  20,000 
tons,  and  the  price  has  been  reduced  from  9  to  5  cents  a  pound. 
It  may  be  added  that  the  quality  of  this  product  has  been  so  im- 
proved, that  for  candle  purposes,  especially  in  Great  Britian,  it 
has  superseded  tallow,  stearine,  products  of  palm  oil,  etc.,  and 
the  price  of  candles  has  been  reduced  one  half  in  consequence. 

In  addition  to  all  this  the  trust  has  undertaken  the  manufacture 
of  its  own  sulphuric  acid,  having  need  of  a  greater  quantity  of  that 
product.  Through  improved  processes  introduced  into  the  manu- 
facture of  this  commodity  the  price  has  been  reduced  from  a  cent 
and  a  quarter  a  pound  to  eight  cents  a  hundred  pounds.  By  such 
means  this  trust  has  been  able  to  give  to  the  community  in 
reduced  prices  the  full  benefit  of  all  improvements  in  refining 
petroleum,  and  to  obtain  its  profit  from  what  formerly  was  mere 
waste. 

Nor  is  this  all  ;  the  series  of  improvements,  from  the  pipe  line 
up,  which  have  thus  been  developed  through  the  increasing  com- 
bination of  capital,  has  since  been  copied"  bodily  in  Russia. 
Petroleum  was  discovered  there  long  before  it  was  known  in 
Pennsylvania,  but  because  of  crude  methods  for  developing  it 
it  was  not  much  more  serviceable  to  them  than  were  the  valuable 
mineral  and  agricultural  possibilities  of  this  country  to  the 
Indians.  But  after  the  development  of  these  processes  here, 
the  combination  of  European  capital  took  America's  experience 
and  discoveries  to  Russia,  where  oil  is  now  produced  by  sub- 
stantially the  same  process.  It  will  thus  be  seen  that  the  com- 
bination of  capital  in  this  industry  has  not  only  lowered  the  price 
and  improved  the  quality  of  oil  in  this  country,  but  has  actually 
transferred  that  much  of  our  civilization  to  Russia. 

It  may  be  said  that  this  is  not  true  of  all  trusts,  but  that  some 
of  these  combinations  have  used  their  power  to  increase  instead 
of  to  reduce  prices.  That  there  are  men  at  the  head  of  trusts 


414  TRUSTS  AND   CORNERS. 

who  mistake  their  true  economic  function  will  not  be  questioned 
for  a  moment  ;  but  to  the  extent  that  trusts  are  used  for  specu- 
lative instead  of  productive  purposes — to  create  corners  instead 
of  reducing  the  cost  of  production — will  they  fail  to  be  a  perma- 
nent advantage  either  to  the  community  or  to  those  undertaking 
them.  Corners  can  only  be  successful  to  the  extent  that  they 
can  control  a  commodity  for  a  sufficient  length  of  time  to  force 
its  price  up  abnormally  high.  The  concentration  of  productive 
capital  in  trusts,  railroads,  syndicates,  and  the  like,  tends  to 
ultimately  prevent  this  in  two  ways  :  (i)  By  increasing  the 
amount  of  product  to  such  proportions  as  to  make  its  permanent 
control  by  a  few  persons  practically  impossible.  (2)  By  in- 
creasing the  facilities  for  communication  and  transportation  so 
that  commodities  can  be  readily  obtained  from  any  part  of  the 
world. 

Before  the  period  of  steam  and  the  combination  of  productive 
capital,  although  millionaires  were  few,  corners  were  numerous 
and  relatively  successful.  With  the  development  of  the  railroad, 
telegraph,  steamship,  large  factory,  and  trusts,  however,  corners 
have  become  more  and  more  impossible.  This  is  shown  by  the 
fact  that  during  the  last  fifteen  years  almost  every  extensive 
attempt  to  corner  commodities  has  resulted  in  serious  loss  and 
often  ruin  to  its  projectors.  Witness  Black  Friday,  and  the  ruin 
of  Keene  in  the  wheat  corner  five  years  later,  and  the  failure  of 
the  copper  syndicate  last  year,  which  came  very  near  bankrupting 
a  number  of  the  largest  capitalists  in  the  world  and  breaking  the 
bank  of  France. 

The  reason  for  the  failure  of  these  and  many  other  efforts  to 
fictitiously  inflate  prices,  is  that  the  quantity  of  wealth  produced 
and  the  means  for  rapidly  transferring  it  to  any  given  point  have 
increased  so  enormously  that  to  corner  any  staple  product  long 
enough  to  accomplish  the  end  desired  is  practically  impossible. 
Thus,  so  far  from  the  combination  of  capital  in  production  and 
transportation  being  the  cause  of,  or  favorable  to,  corners,  it 
tends  more  and  more  to  make  merely  speculative  monopolies 
impossible.  The  recent  experience  of  the  sugar  trust  and  the 
cotton-seed  oil  trust  also  illustrated  the  same  tendency.  The 
combination  of  capital  is  strictly  an  economic  phenomenon 
subject  to  economic  law,  and  when  it  is  used  for  an  uneconomic 


RESPONSIBILITY  OF  CAPITALISTS.  415 

purpose  it  is  pretty  certain  to  bring  its  own  punishment.  In 
other  words,  productive  combination  is  in  the  order  of  industrial 
evolution,  and  any  attempt  to  permanently  restrict  that  move- 
ment is  inimical  to  the  best  interests  of  a  progressive  society. 

There  is  one  fact,  however,  that  capitalists  would  do  well  not 
to  overlook — namely,  that  their  safety  in  the  future  depends  upon 
the  economic  use  of  their  power.  If  they  persist  in  the  effort  to 
employ  the  power  of  combination  for  uneconomic  purposes,  they 
will  find  themselves  confronted  by  another  and  more  summary 
kind  of  opposition  than  economic  law  presents.  In  proportion 
as  the  social  condition  of  the  masses  improves  and  they  become 
more  informed  and  politically  powerful,  do  they  become  sensitive 
about  their  rights,  conscious  of  their  strength,  and  indignant  at 
any  effort  to  trifle  with  their  interests.  Consequently,  if  capitalists 
fail  to  recognize  this  important  fact  and  continue  to  trifle  with 
the  interests  of  the  community  by  perversion  of  their  industrial 
power,  they  may  suddenly  find  themselves  in  the  hands  of  an 
arbitrary  political  authority  whose  action  may  be  even  more  un- 
reasoning than  theirs  has  been  uneconomic.  There  is  nothing 
which  furnishes  such  a  plausible  basis  for  the  demands  of 
socialism  to-day  as  the  uneconomic  conduct  of  the  capitalist 
class.  Whether  industrial  evolution  and  civilization  shall  be 
permitted  to  advance  by  increasing  the  wealth-cheapening  capa- 
city of  capital,  or  whether  society  shall  be  forced  into  an  experi- 
ment of  socialism  with  its  stultifying  influences,  will  mainly 
depend  upon  the  use  made  by  the  capitalist  class  of  the  economic 
power  which  society  has  conferred  upon  them. 


CHAPTER   VII. 
THE    COMBINATION    OF   LABOR. 

THE  combination  of  labor  is  the  historic  and  economic  accom- 
paniment of  the  combination  of  capital ;  it  is  as  necessary  to  the 
wages  system  as  the  factory  is  to  capitalistic  production.  In  the 
preceding  chapter  we  saw  how  uneconomic  and  short-sighted  is 
the  policy  of  those  who  oppose  the  concentration  of  capital.  The 
unwisdom  of  this  opposition  is  quite  clear  to  the  particular  capi- 
talists against  whom  it  is  directed.  It  was  clear  to  small  fac- 
tory owners  in  the  first  quarter  of  this  century  ;  it  was  obvious  to 
the  corporations  in  the  third  quarter  of  this  century,  and  it  is  no 
less  manifest  to  trusts,  syndicates,  and  other  colossal  combina- 
tions of  to-day.  But  singularly  enough  they  are  all  tacitly  or 
avowedly  opposed  to  the  combination  of  labor.  The  president  of 
a  syndicate,  trust,  confederated  railroad,  or  telegraph  system,  can 
see  the  folly  and  inconsistency  of  the  large  newspaper,  itself  a 
gigantic  corporation,  railing  against  the  combination  of  capital ; 
but  he  is  apparently  oblivious  of  his  own  inconsistency  in 
opposing  the  combination  of  labor.  This  attitude  can  be 
explained  only  on  the  ground  of  mistaken  notions  regarding  the 
subject.  A  little  reflection  wiH  show  that  every  reason  which 
obtained  for  the  concentration  of  capital  applies  with  equal 
force  and  for  similar  reasons  to  the  combination  of  labor  ;  and 
that  all  the  objections  urged  against  the  combination  of  labor  are 
applicable  to  the  combination  of  capital. 

The  standard  by  which  all  social  institutions  must  be  judged 
is  their  influence  upon  the  welfare  of  the  community  ;  nothing 
can  permanently  promote  the  industrial  welfare  of  society  which 
does  not  either  reduce  prices  or  increase  wages.  Since  the  eco- 
nomic effect  of  the  combination  of  capital  is  shown  in  the  price 

416 


OBJECTIONS  TO  TRADES  UNIONS.  417 

of  commodities,  and  that  of  the  combination  of  labor  is  shown  in 
wages,  the  social  utility  of  the  former  must  be  judged  by  its  ten- 
dency to  make  wealth  cheap — to  reduce  prices, — and  that  of  the 
latter  by  its  tendency  to  make  men  dear — to  increase  wages.  We 
have  already  seen  that,  judged  by  this  test,  combination  of  capital 
is  a  great  social  benefit,  and  if  we  bear  in  mind  the  point  of  view 
from  which  the  discussion  has  proceeded,  we  shall  have  no  diffi- 
culty in  seeing  that  the  same  is  true  of  the  combination  of  labor. 
Among  the  many  objections  to  trades  unions  it  is  urged  :  (i)  That 
they  are  un-American,  because  they  were  born  in  and  belong  to  the 
monarchical  institutions  of  the  old  world,  and  are  out  of  place  in 
a  democratic  republic  ;  (2)  that  they  tend  to  destroy  the  right  of 
individual  contract,  and  thereby  limit  the  laborer's  freedom  and 
industrial  independence  ;  (3)  that  they  tend  to  encroach  upon 
the  employer's  right  to  manage  his  own  business  by  preventing 
him  from  contracting  for  his  labor  with  the  laborers  individually  ; 
(4)  that  they  cannot  increase  wages  and  improve  the  laborers' 
social  condition,  because  they  are  contrary  to  natural  law. 

1.  It  is  true  that  trades  unions  were  not  born  in  America  ;  neither 
were  factories  and   railroads.     If  labor  combinations  are  to  be 
rejected  in  America  because  they  arose  in  Europe,  then  the  use 
of  steam,  the  daily  press,  our  literature,  language,  religion,  and 
indeed  our  very  civilization  may  also  be  rejected  for  the  same 
reason.     Of  all  the  objections  urged  against  the  combination  of 
labor,  there  are  none  more  flippant  and  absurd  than  the  fact  that 
it  was  of  old-world  origin.      Trades  unions  arose  in  England 
solely  because  capitalistic  production  and  the  factory  system  had 
their  rise  there.    The  combination  of  labor,  like  that  of  capital,  is 
not  a  national  but  an  economic  institution,  and  must  be  judged 
entirely  by  its  economic  characteristics.     To  call  an  institution 
un-American  because  it  did  not  have  its  birth  in  the  United 
States,  is  to  fail  to  distinguish  between  an  economic  principle  and 
a  geographical  location.     The  truth  or  wisdom  of  a  doctrine,  in- 
stitution, or  policy,  does  not  depend  upon  how  or  where  it  arose, 
but  upon  the  social  effect  of  its  application. 

2.  The  contention  that  trades  unions  destroy  the  right  of  indi- 
vidual contract  and  limit  the  laborer's  freedom  has  a  plausible 
seeming,  but  it  is  singularly  superficial.     If  it  be  true  that  com- 
bination destroys  the  freedom  of  the  laborer,  why  does  it  not 

27 


41 8  SOPHISTICAL    OPPOSITION. 

also  destroy  that  of  the  capitalist.  It  will  hardly  be  contended 
that  capitalists  who  have  steadily  integrated  into  larger  and 
larger  combinations  are  less  free  than  formerly  ;  one  great  com- 
plaint against  them  is  that  they  are  having  too  much  freedom.  It 
is  true  that  labor  combinations  have  steadily  increased  during  the 
last  fifty  years,  and  it  is  equally  true  that  the  laborers'  industrial, 
social,  and  political  freedom  has  increased  more  during  that 
period  than  ever  before. 

Nearly  all  opposition  to  labor  combinations  is  ostensibly  for  the 
laborers'  benefit.  As  early  as  1831,  when  the  trades  union  asked 
Parliament  to  reduce  the  working  time  of  the  factory  operatives  in 
England  from  twelve  to  eleven  and  a  half  hours  a  day,  the  proposi- 
tion was  opposed  on  the  ground  that  it  would  destroy  the  freedom 
of  the  laborer  to  work  as  many  hours  as  he  chose.  And  forty-five 
years  later  the  same  reasoning  was  presented  in  Massachusetts 
against  the  adoption  of  a  ten-hour  factory  law.  Edward  Atkinson 
and  others  repeatedly  pleaded  against  the  measure  on  the  ground 
of  individual  freedom,  claiming  that  to  limit  the  working  day  by 
law  to  ten  hours  was  to  deprive  the  working  women  (the  law  only 
applied  to  women  and  children)  of  their  sacred  right  to  make  an 
individual  contract  to  work  as  many  or  as  few  hours  and  for  such 
wages  as  they  pleased.  Such  reasoning  implies  that  the  factory 
women  had  previously  enjoyed  the  precious  boon  of  making 
individual  contracts  regarding  their  hours  and  wages.  The  fact 
is,  however,  that  no  such  right  existed  ;  there  was  never  a  time 
since  the  factory  system  began  when  the  operative  of  either  sex 
could  make  any  such  individual  contract ;  and  prior  to  the  fac- 
tory system  and  the  existence  of  trades  unions  the  laborer  had 
neither  part  nor  lot  in  determining  either  his  wages,  hours  of 
labor,  or  any  othe*  condition.  Down  to  the  fourteenth  century 
the  laborer  was  the  property  of  his  master.  From  the  middle  of 
the  fourteenth  to  the  close  of  the  eighteenth  century  his  industrial 
conditions  were  determined  by  statute  law,  in  which  he  had  no 
voice  ;  and  during  the  first  half  of  the  present  century  they  were 
determined  by  the  employer.1  The  right  or  expediency  of  con- 

1  During  the  reign  of  Edward  III.,  Richard  II.,  and  the  Fourth  and  Fifth 
Henrys,  the  law  was  chiefly  directed  to  regulating  the  laborers'  wages, 
food,  clothes,  occupation,  and  mobility,  coupled  with  severe  penalties  for 
violation.  And  during  the  next  four  hundred  years  (1425-1825)  this  was  supple- 


FALSE  NOTIONS  OF  FREEDOM.  419 

suiting  the  laborer  in  such  things  is  a  matter  of  recent  date  ;  a 
fact  which  labor  combinations  have  made  possible  and  are  fast 
making  necessary. 

The  mistake  in  this  attitude  arises  from  a  misconception  of 
what  constitutes  freedom.  As  already  observed,1  freedom  does 
not  consist  in  the  negative  permission  to  do  but  in  the  positive 
power  of  actual  doing.  The  essence  of  freedom  is  power,  and 
the  source  of  economic  and  social  power  is  wealth.  Nothing  can 
furnish  the  motive  to  associate  but  the  fact  that  association 
increases  the  power  to  obtain  desired  objects.  The  history  of 
freedom  is  the  history  of  progress,  and  the  history  of  progress  is 
the  history  of  industrial,  social,  and  political  integration  or  com- 
bination. Every  movement  towards  freedom  is  a  movement 
towards  greater  economic  and  social  interdependence  between 
individuals.  Interdependence  involves  mutual  helpfulness,  which 
in  turn  furnishes  security  of  rights  and  the  maximum  free- 
dom of  action.  The  difference  between  freedom  furnished  by 
savagery  and  that  secured  by  society  is  that  the  former  affords 
the  freedom  to  injure  while  the  latter  gives  freedom  only  to  help 
our  fellow-man,  and  thereby  benefit  ourselves.  If  trades  unions 
were  inimical  to  the  laborers'  freedom  we  should  find  more  indi- 
viduality and  freedom  among  unorganized  than  among  organized 
laborers.  The  facts,  however,  are  everywhere  the  reverse.  In 
every  country  and  industry  it  is  the  organized  laborers  who  are 
the  most  characterful  and  progressive,  and  the  most  difficult  to 
coerce  or  mislead,  either  industrially  or  politically.  It  is  not  cor- 
rect therefore,  either  theoretically  or  historically,  that  labor  com- 
binations tend  to  destroy  the  laborers'  freedom. 

3.  The  complaint  that  trades  unions  invade  the  rights  of  the 
capitalist  to  control  his  own  business,  is  regarded  as  the  greatest 
grievance  by  the  employing  class.  When  discussing  this  point 
however,  it  soon  becomes  apparent  that  the  phrase,  "  preserving 
the  laborers'  right  of  free  contract  "  really  means  nothing  but 'the 
right  of  the  employer  to  insist  upon  making  contracts  with 

mented  by  laws  making  it  a  penal  offence  for  laborers  to  combine  for  the  pur- 
pose of  obtaining  advance  of  wages,  or  for  altering  the  hours  of  work."  See 
Encyclopedia  Britannica,  vol.  v.,  p.  181.  Also,  Rogers'  "Six  Centuries  of 
Work  and  Wages,"  p.  399. 

1  See  page  12.     Also,  "Wealth  and  Progress,"  pp.  131,  132. 


420  ONE-SIDED  ECONOMICS. 

laborers  individually.  A  very  slight  acquaintance  with  industrial 
experience  is  sufficient  to  show  that  the  reason  for  this  is,  that  in 
so  doing  the  laborer  is  less  able  to  make  contracts  to  his  own 
advantage. 

There  is  surely  no  principle  in  economics  or  equity  which  will 
not  apply  with  as  much  force  to  the  capitalist  as  to  the  laborer. 
If  the  capitalist  has  a  right  to  object  to  the  laborers  acting  col- 
lectively, the  laborers  have  an  equal  right  to  object  to  the  associ- 
ated action  of  capitalists.  In  truth  however,  such  an  objection 
on  the  part  of  either  is  the  very  acme  of  absurdity,  because 
individual  action  has  been  rendered  practically  impossible  on  both 
sides  by  the  very  constitution  of  the  factory  system.  Everybody 
is  now  aware  that  associated  capital  is  practically  indispensable 
to  successful  production.  No  matter  how  desirable  it  might  ap- 
pear that  each  stockholder  should  directly  participate  in  every 
transaction  of  the  concern,  such  a  town-meeting  method  is  now 
utterly  impracticable.  That  a  considerable  degree  of  associated 
and  representative  action  is  necessary  for  capital  is  generally 
admitted  ;  the  individual  contract  system  is  literally  insisted  upon 
only  for  the  laborer.  All  contracts  for  labor  must  take  place 
between  corporate  capital  and  individual  laborers.  When  the 
laborer  purchases  commodities  he  must  buy  individually  from  cor- 
porate producers,  and  when  he  sells  labor  he  must  sell  individually 
to  corporate  purchasers. 

This  position  is  as  illogical  as  it  is  impracticable.  Fortunately 
economic  law  makes  such  an  one-sided  arrangement  impossible. 
The  very  conditions  which  have  made  the  combination  of  capital 
necessary,  have  rendered  a  practical  uniformity  in  the  price  of 
labor  necessary  for  the  same  work  in  the  same  shop.  It  is  mani- 
festly impossible  for  a  concern  employing  several  thousand 
laborers  to  make  a  special  contract  with  each  individual  laborer 
as  to  the  wages  he  shall  receive  and  the  hours  he  shall  work.  In 
the  first  place,  a  multitude  of  different  rates  of  wages  and  other 
conditions  would  throw  the  whole  concern  into  confusion.  Every 
change  of  workman  would  be  liable  to  involve  a  new  price,  and 
thus  change  the  cost  of  producing  the  article.  Since  the  labor  of 
all  the  workmen  is  merged  into  a  common  product  and  sold  at  a 
uniform  price,  it  would  be  impossible  to  know  from  week  to  week 
whether  the  selling  price  was  above  or  below  the  cost  of  produc- 


INDIVIDUAL    CONTRACTS  IMPOSSIBLE.  421 

tion.  This  difficulty  would  be  further  increased  by  the  fact  that 
the  productive  capacity  of  operatives  greatly  varies,  especially 
where  men,  women  and  children  all  work  at  the  same  occupation. 
It  was  this  fact,  together  with  the  desire  to  spur  the  workman  to 
his  maximum  effort,  that  led  to  the  introduction  of  the  piece-work 
system.  It  is  needless  to  say  that  to  have  a  special  contract  with 
each  individual  operative  as  to  the  price  paid  per  unit  of  product 
is  absolutely  impracticable. 

Still  another  obstacle  to  individual  contract  is  the  fact,  that 
under  factory  methods  the  tools  are  all  driven  by  a  single  power. 
This  makes  it  essential  to  the  economy  of  the  process  that  there 
be  a  uniformity  of  hours  in  order  that  all  may  commence  and 
stop  at  the  same  time,  because  it  involves  about  as  much  cost  to 
run  the  machinery  for  a  portion  as  for  the  whole  number  of 
operatives.  Furthermore,  since  every  department  supplies  but  a 
fraction  of  the  finished  product,  it  is  necessary  that  its  quota 
should  be  furnished  in  a  uniform  proportion  to  all  the  rest,  as 
any  variation  in  this  respect  would  be  a  disturbing  hindrance  to 
the  whole  concern.  In  other  words,  the  workers  in  the  seventy 
different  branches  in  the  manufacture  of  a  shoe  are  simply  inte- 
gral parts  of  a  continuous  process,  and  therefore  must  all  conform 
to  a  general  system  of  operations.  It  is  as  impossible  for  each 
operative  to  make  separate  conditions  without  regard  to  the  rest 
as  it  would  be  to  make  the  cogs  of  a  wheel  of  different  length, 
breadth,  or  thickness,  without  regard  to  each  other.  Individual 
contracts  therefore,  regarding  wages,  hours  of  labor,  or  other 
working  conditions,  are  absolutely  out  of  the  question  under  the 
factory  system.  Indeed,  no  practical  business  man  would  ever 
seriously  entertain  such  an  idea. 

As  a  matter  of  fact,  no  such  freedom  on  the  part  of  the  laborer 
to  make  an  individual  contract  for  himself,  different  from  that 
under  which  his  fellow-workman  in  the  same  shop  or  industry  is 
working,  is  ever  intended  by  the  much-heralded  phrase  "  free- 
dom of  contract."  All  that  is  really  meant  by  this  phrase  is  that 
the  employer  should  have  the  freedom  to  take  the  laborers  singly 
in  order  to  make  them  jointly  accept  his  terms.  It  simply  means 
that  in  making  a  contract,  the  laborer  shall  not  have  the  same 
right  to  be  represented  by  the  most  competent  of  his  class  or  craft 
that  capital  has  ;  but  that  each  one,  however  ill-informed  or  in- 


422  UNFAIR   CONTRACT. 

competent  to  present  his  own  case,  shall  be  dealt  with  simply  by 
the  representative  of  corporate  capital.  Every  time  a  laborer  is 
induced,  through  ignorance  or  otherwise  to  accept  inferior  con- 
ditions, it  increases  the  power  of  the  employer  to  enforce  similar 
terms  upon  others.  Thus,  while  the  uniformity  of  price  for  the 
same  work  in  the  same  shop  prevails,  this  method  enables  the 
employer  to  impose  the  maximum  hardship  and  give  the  minimum 
pay  that  the  superior  men  can  endure,  whereas  if  the  laborers 
acted  collectively,  as  the  capitalists  do,  the  more  competent  of 
their  number  could  be  chosen  to  negotiate  the  contract  for  the 
whole,  thus  preventing  the  inferior  from  being  used  as  a  means 
of  destroying  the  contracting  power  of  the  superior.  And  since 
the  contract  made  by  the  superior  would  always  be  as  favorable 
or  more  so  than  that  made  by  the  inferior,  the  poorest  laborers 
have  every  thing  to  gain  and  nothing  to  lose  by  associated  or 
representative  action.  Any  system  of  jurisprudence  which  should 
permit  representation  by  counsel  on  one  side  and  refuse  it  on  the 
other,  would  throughout  Christendom  be  pronounced  as  a  scan- 
dalous violation  of  the  principles  of  equity  ;  yet  this  relation 
obtains  between  employers  and  employed  in  the  most  civilized 
countries,  except  so  far  as  it  has  been  rendered  impossible  by  the 
power  of  organized  labor  itself. 

As  proof  of  the  obvious  one-sidedness  of  the  individual-contract 
idea,  it  is  only  necessary  to  go  into  any  large  factory  and  read  the 
printed  rules  which  govern  the  conditions  of  employment.  I  have 
read  scores  of  them.  They  are  usually  printed  and  posted  up 
near  the  entrance  of  the  factory,  and  they  stipulate  the  various 
conditions  of  work  the  employers  desire  to  impose.  Sometimes 
these  rules,  miscalled  contracts,  appear  to  give  the  same  rights  to 
the  laborer  as  to  the  employer.  This,  however,  is  usually  fol- 
lowed by  the  qualification  that  in  case  of  misdemeanor,  inferior 
workmanship,  or  other  cause,  the  laborer  can  be  summarily  dis- 
missed, and  of  these  things  the  employer  is  the  sole  judge.  In 
short,  these  rules  are  formulated  and  enforced  exclusively  by  the 
employer.  And  when  a  new  laborer  is  engaged  he  neither  hears 
nor  sees  any  thing  of  them  but  the  mere  fact  that  they  are  posted 
up  in  the  factory,  and  that  he  was  not  coerced  into  taking  the  po- 
sition, is  held  to  constitute  a  free  contract,  the  conditions  of  which 
are  legally  binding,  and  are  commonly  so  interpreted  by  the  courts. 

It  may  be  replied  that  this  is  the  only  practical  way  of  doing, 


TRADES  UNIONS  AND  WAGES.  423 

so  far  as  the  employer  is  concerned.  This  is  undoubtedly  true  ; 
but  it  demonstrates  the  impossibility  of  individual  contracts  ; 
hence  the  absurdity  of  objecting  to  labor  combinations,  on  the 
ground  that  they  destroy  the  laborers'  freedom  of  individual  con- 
tract. The  right  of  individual  contract  means  nothing,  unless  it 
means  that  every  individual  can  make  a  contract  for  himself  with- 
out regard  to  that  of  others.  Experience  has  shown  that  such 
contracts  are  incompatible  with  a  highly  complex  productive  sys- 
tem. To  the  modern  employer  laborers  constitute  various  parts 
of  a  vast  productive  machine,  and  hence  must  work  in  practical 
uniformity  or  not  at  all.  This  is  not  only  true  of  the  laborers  in 
any  given  workshop,  but  it  is  practically  true  of  the  laborers  in 
different  workshops  in  the  same  industry,  whose  products  com- 
pete in  the  same  market.  Thus  it  is  the  economic  conditions  of 
production,  and  not  labor  combinations,  that  have  destroyed  the 
feasibility  of  individual  contracts  ;  and  it  is  beyond  the  power  of 
either  laborer  or  capitalist,  or  both  combined,  to  restore  it  with- 
out abrogating  the  factory  system.  Since  both  capital  and  labor 
now  necessarily  move  in  large  aggregations,  for  organized  capital 
to  object  to  the  existence  of  organized  labor  is  manifestly  as  un- 
just as  it  is  irrational  and  uneconomic. 

3.  Another  objection  urged  against  labor  combinations  is  that 
they  are  uneconomic  in  their  character  and  methods.  It  is  in- 
sisted that  they  cannot  increase  wages  because  wages  are  gov- 
erned by  natural  law,  whose  operation  is  beyond  the  influence  of 
trades  unions.  That  much  of  the  conduct  of  trades  unions  has 
been  uneconomic  will  not  be  disputed  by  any  one  familiar  with 
their  history.  But  it  is  scarcely  less  clear  that  this  is  mainly  due 
to  their  acceptance  of  the  capitalists'  doctrine  of  wages,  and  not 
to  any  thing  in  the  nature  of  labor  combinations.  This  doctrine 
is  that  wages  are  regulated  by  the  proportion  between  the 
demand  for  and  supply  of  laborers,  and  consequently  that 
nothing  can  increase  wages  which  does  not  diminish  the  supply  of 
labor,  as  compared  with  the  demand.  The  supply  of  labor  being 
determined  by  the  number  of  the  laboring  population,  any  en- 
deavor to  increase  wages  except  by  limiting  the  population  was 
held  tq  be  a  futile  attempt  to  suspend  the  operation  of  natural 
law.1  A  doctrine  according  to  which  wages  could  only  be  raised 

1  See  Mill's  "Principles  of  Political  Economy,"  vol.  i.,  p.  428  ;  "  McCul- 
loch's  '•  Principles  of  Political  Economy,"  p.  174  ;  Perry's  "  Political  Econ- 


424  STRIKES  AND   CORNERS. 

by  increasing  the  deaths  or  decreasing  the  births  in  the  laborers' 
families  was  properly  repugnant  to  them,  though  they  were 
unable  to  answer  it.  While  the  laborers  accepted  the  economists' 
theory,  they  rejected  their  means  of  applying  it,  and  to  their 
credit  be  it  said,  they  endeavored  to  control  the  supply  of  labor 
without  resorting  to  protracted  celibacy  or  infanticide. 

Moreover,  they  were  constantly  having  object  lessons  in  the 
application  of  this  doctrine  by  the  employing  class.  Supply  and 
demand  being  regarded  as  the  law  of  prices  as  well  as  of  wages,  the 
capitalists  had  practically  to  deal  with  the  same  problem.  With 
this  exception,  however,  that  in  their  case  supply  involved  the  ex- 
istence of  commodities,  in  the  case  of  the  laborers  it  involved  the 
existence  of  human  beings.  In  acting  upon  this  doctrine,  the 
capitalists  endeavored  to  regulate  the  price  of  commodities  by 
withholding  a  portion  of  the  product  from  the  market — reducing 
the  supply.  This  naturally  led  to  corners  and  other  forms  of 
artificial  monopoly,  which  are  now  recognized  as  social  evils, 
especially  as  all  such  efforts  are  undertaken  solely  to  increase 
the  price  of  commodities. 

That  the  laboring  class  should  imitate  the  policy  by  which  their 
masters  had  apparently  been  so  successful  cannot  be  a  matter  of 
surprise.  They  naturally  tried  to  do  with  labor  what  the  capital- 
ists had  done  with  commodities — namely,  to  limit  the  supply  in 
order  to  increase  its  price,  by  withholding  a  portion  of  it  from 
the  market,  which  in  their  case  is  called  a  strike.  Every  strike 
for  higher  wages  is  simply  the  practical  application  of  the  doctrine 
of  "  supply  and  demand "  to  labor  ;  it  is  to  the  labor-market 

omy,"  1st.  ed.,  pp.  122,  123.  Also  Wells'  "Recent  Economic  Changes,"  p. 
124.  Cf.  "  Wealth  and  Progress,"  pp.  35-52.  Nor  can  it  be  said  that  this  doc- 
trine has  been  discarded  although  its  fallacy  has  been  repeatedly  exposed.  The 
fact  that  Mill  practically  gave  it  up  before  he  died,  rendered  the  wages-fund 
form  of  stating  it  unpopular.  But  the  doctrine  that  wages  are  governed  by  the 
relative  demand  and  supply  of  laborers  has  continued  to  be  taught  by  the  most 
scholarly  economists.  Cairnes  tried  to  rehabilitate  it  after  Mill's  conversion. 
Jevons  reaffirmed  it,  and  it  is  the  essential  idea  in  the  most  recent  discussion  of 
wages  by  German,  Austrian,  English,  and  American  writers.  And  Marshall  in 
his  "Principles  of  Economics,"  (1890)  which  is  characteristically  the  embodi- 
ment of  the  most  recent  discussion  of  the  subject  by  continental  and  American 
writers,  makes  supply  and  demand  the  basis  of  all  his  reasoning  on  Distribution 
and  Exchange. 


FUNCTION  OF  COMBINATIONS.  425 

precisely  what  a  corner  is  to  that  of  commodities.  And  yet  this 
is  precisely  what  economists  have  taught  in  theory  and  the 
capitalists  have  illustrated  .in  practice.  Thus  the  feature  in  the 
combination  of  capital  which  the  public  most  oppose,  and  that  in 
the  combination  of  labor  which  the.  employing  class  most  con- 
demn, is  the  logical  result  of  the  popular  doctrines  of  prices  and 
wages,  and  not  a  necessary  part  of  industrial  combination,  either 
of  capital  or  of  labor. 

We  have  already  seen  that  the  arbitrary  and  speculative  feature 
of  the  combination  of  capital  is  the  incident,  and  that  its  normal 
function  is  to  increase  the  economic  efficiency  of  production  and 
reduce  the  price  of  commodities  ;  and  also  that  the  former  is 
diminished  and  the  latter  increased  as  the  progress  of  society 
advances.  A  very  little  consideration  of  the  subject  will  show 
that  this  is  equally  true  of  labor  combinations.  Not  only  have 
the  rise  of  wages  and  the  general  freedom  of  the  laboring  classes 
everywhere  advanced  with  the  growth  of  trades  unions,  but  these 
organizations  have  been  one  of  the  most  efficient  means  in  pro- 
moting that  end.  The  reason  for  this  is  obvious  when  considered 
in  the  light  of  the  doctrine  of  wages  already  stated.  When  we 
realize  that  cost,  and  not  the  mere  ratio  between  quantities,  is  the 
chief  determining  influence  in  prices,  the  importance  of  labor  com- 
binations as  a  means  of  raising  wages  is  easily  understood.  Upon 
the  principle  that  the  cost  of  labor  is  high  or  low  according  to 
the  simplicity  or  complexity  of  the  social  environment,  it  follows 
that  whatever  increases  the  laborer's  social  opportunities — i.e., 
forces  him  into  more  frequent  contact  with  an  increasing  variety 
of  social  influences,  necessarily  tends  to  increase  his  wages,  and 
this  is  precisely  what  labor  organizations  do. 

Isolation  is  social  death.  The  poverty  of  the  laborer's  social 
life  has  always  been  the  lack  of  social  opportunity.  For  centuries 
the  only  opportunity  for  social  intercourse  open  to  the  laborer 
outside  of  his  meagre  family  circle  and  the  church  was  the  tavern. 
During  the  middle  ages  and  practically  down  to  the  present  cen- 
tury the  church  and  the  tavern  or  inn  were  the  most  prominent 
social  institutions.  Although  the  church  was  the  centre  of  culture 
and  refinement  and  furnished  what  there  was  of  art  and  music, 
its  attitude  towards  the  laborer  was  always  that  of  authority.  It 
bade  him  obey  under  penalty  of  endless  punishment.  It  afforded 


426  CHURCH  AND  TA  VERN. 

him  little  if  any  opportunity  for  social  intercourse  with  his  peers, 
where  he  could  talk  over  his  grievances  on  equal  terms  with  those 
whose  experience  was  practically  like  his  own. 

Social  intercourse  for  the  laborer,  of  a  democratic  character, 
was  first  furnished  by  the  tavern.  There  the  laborers,  tired 
and  heart-sore,  with  no  industrial,  social,  religious,  or  political 
rights  which  their  superiors  were  bound  to  respect,  could  meet 
over  a  mug  of  beer,  relate  their  hardships  to  one  another,  and 
exchange  sympathetic  encouragement.  By  such  social  inter- 
course the  laborers  not  only  became  more  acquainted  with,  and 
interested  in,  each  other,  but  the  more  intelligent  and  characterful 
among  them  were  naturally  inspired  to  suggest  various  methods 
for  improving  their  condition  and  demanding  new  rights  and 
greater  freedom.  Thus,  by  affording  social  opportunity,  the 
tavern  was  one  of  the  early  instruments  of  social  progress  ;  it 
may  indeed  be  said  to  have  been  the  birthplace  of  free  speech 
for  the  masses.1  What  the  tavern  was  to  the  early  peasantry 
the  trades  union  is  to  the  modern  laborer.  Indeed,  for  the  first 
half  of  the  present  century  the  trades  union  was  really  a  differ- 
entiation of  the  tavern  meeting.  Instead  of  meeting  in  a  general 
social  way,  they  met  for  discussion  and  united  action  regarding 
their  special  industries. 

The  trades  union  tends  to  develop  the  intelligence  and  charac- 
ter of  the  laborers  in  many  ways.  In  the  first  place  it  stimulates 
the  study  of  industrial  conditions,  which  involves  a  considerable 
amount  of  reading  and  general  information,  and  also  a  close 
acquaintance  with  the  industrial  condition  of  their  craft.  The 
discussion  of  the  various  propositions  which  arise  for  considera- 
tion develops  individual  confidence,  force  of  character,  and  a 
consciousness  of  industrial  rights  and  social  power,  not  only  in 
those  who  actively  participate,  but  in  all  who  attend.  In  short, 
the  trades  union  is  a  great  educational  institution  ;  it  is  the  eco- 
nomic academy  of  the  laboring  class  and  is  practically  the  only 
opportunity  for  industrial  education  they  have  ever  had. 

1  The  need  of  the  tavern  as  a  social  resort  will  be  better  understood  when  we 
realize  the  fact  that  the  first  public  meeting  ever  held  in  England  for  the  open 
discussion  of  political  rights  did  not  take  place  till  1769.  See  Buckle's  "  History 
of  Civilization,"  vol.  i.,  p.  311.  Also  Hallam's  "  Constitutional  History,"  vol. 
ii.,  p.  420.  Cook's  "  History  of  Party,"  vol.  iii.,  p.  187.  Albemarle's 
"  Memoirs  of  Rockingham,"  vol.  ii.,  p.  93. 


SOCIAL  EFFECT  OF  LABOR  UNIONS.  42? 

Moreover,  the  labor  union  is  an  important  social  centre  ;  in 
addition  to  furnishing  the  laborers  with  the  means  of  a  better 
knowledge  of  their  economic  conditions,  it  affords  a  degree  of 
opportunity  for  social  intercourse  otherwise  practically  impossible. 
It  is  to  the  laboring  class  what  clubs  and  other  social  institutions 
are  to  the  wealthy.  The  social  intercourse  and  activity  thus 
created  (which  is  frequently  extended  to  their  families  and 
friends)  necessarily  awaken  new  tastes,  wants,  and  aspirations. 
Nor  is  the  influence  of  this  limited  to  the  personal  character 
and  home  life  of  the  members  of  the  association,  but  the  social 
rivalry  between  different  organizations  is  equally  pronounced. 
So  strong  is  this  that  a  class  feeling  often  exists  between  trades 
as  to  their  social  position,  the  test  usually  being  the  wages  paid 
in  their  trade  and  the  financial  strength  of  their  organization. 
Thus,  on  all  public  occasions,  they  vie  with  each  other  as  to 
which  shall  make  the  most  opulent  appearance.  This  social 
competition  necessarily  furnishes  the  incentive  to  new  desires 
and  ambitions  involving  a  greater  variety  of  social  life  and  a 
more  expensive  standard  of  living. 

The  pressure  of  the  increased  necessities  thus  unconsciously 
developed  makes  a  demand  for  an  increase  of  wages  necessary. 
This,  of  course,  does  not  come  suddenly  ;  it  is  felt  first  and  most 
keenly  by  those  who  have  been  most  susceptible  to  the  social- 
izing influences  and  whose  cost  of  living  has  been  most  increased. 
Their  expenditure  begins  to  press  uncomfortably  against  their 
income,  until  finally  they  are  unable  to  make  both  ends  meet. 
Those  who  first  begin  to  experience  this  hardship,  being  the 
most  expensive  of  their  class  and  usually  the  most  intelligent 
and  characterful,  bring  the  matter  before  the  union  and  advocate 
a  general  demand  for  an  increase  of  wages.  When  this  feeling  is 
shared  only  by  a  few,  they  fail  to  carry  their  point. 

Since  it  is  impossible  both  from  the  nature  of  the  factory  sys- 
tem and  the  constitution  of  labor  organizations  to  make  special 
terms  for  individual  cases,  the  only  way  for  the  most  expensive 
laborers  to  secure  an  increase  of  wages  for  themselves  is  to  ob- 
tain the  same  for  their  whole  trade.  Being  thus  compelled  to 
rise  together,  or  not  at  all,  it  becomes  necessary  to  inspire  their 
associates  with  substantially  the  same  feelings  and  ambitions 
they  experience  themselves.  To  do  this  they  are  forced  to  argue 


428  .  TRADES  UNIONS,    ECONOMIC. 

questions  over  and  'over  again,  showing  not  only  the  necessity 
but  the  feasibility  of  their  proposition.  When  they  have  suc- 
ceeded in  convincing  twenty  or  thirty  per  cent,  of  the  most  char- 
acterful in  their  union  of  the  wisdom  of  their  demand,  the  re- 
mainder usually  follow.  With  this  united  action  of  the  whole 
class  they  invariably  succeed  sooner  or  later  in  obtaining  the 
increase  of  wages  or  other  improved  conditions  desired.  All 
this  is  educational  and  socializing  in  its  influence.  It  is  through 
organizations  which  thus  practically  weld  the  laborers  into  a 
social  class  that  the  economic  condition  of  the  whole  is  improved 
by  the  efforts  of  a  small  but  the  most  advanced  portion. 

It  will  thus  be  seen  that  trades  unions  are  essentially  economic 
institutions  ;  instead  of  being  inimical  to  the  laborer's  interest 
and  a  menace  to  capital,  they  are  a  most  important  feature  of 
modern  society.  For  the  same  reason  that  nothing  can  perma- 
nently reduce  the  price  of  commodities,  which  does  not  diminish 
the  cost  of  production,  nothing  can  permanently  advance  wages 
which  does  not  increase  the  laborer's  cost  of  living.  And  upon 
the  same  principle  that  the  combination  of  capital  increases  the 
facilities  for  diminishing  the  cost  of  production,  the  combination 
of  labor  increases  the  opportunity  for  increasing  the  laborer's 
necessities  and  cost  of  living.  It  is  by  their  opportunity-creating 
influences,  and  not  by  their  power  to  limit  the  number  of  labor- 
ers, that  trades  unions  ever  permanently  affect  wages.  Of  course 
they  resort  to  strikes  as  a  means  of  enforcing  their  demands  when 
petitions  and  other  more  moderate  forms  of  request  have  failed  ; 
not  because  it  limits  the  supply  of  laborers,  but  because  a  con- 
siderable portion  of  the  laborers  are  acting  under  the  pressure  of 
a  social  necessity,  which  if  not  satisfied  will  involve  a  protracted 
social  conflict. 

It  is  commonly  assumed  that  the  conducting  of  strikes  is  the 
chief  function  of  labor  unions.  This  is  as  erroneous  as  it  would 
be  to  say  that  the  chief  function  of  organized  capital  is  to  con- 
duct lock-outs.  Strikes  are  among  the  most  reluctant  and  the 
least  beneficial  functions  trades  unions  perform.  It  is  indeed 
notorious  that  strikes  diminish  as  labor  organizations  increase 
in  extent  and  efficiency.  It  is  a  fact  well  known  to  those  con- 
versant with  the  history  of  labor  organizations,  that  far  more 
strikes  have  been  prevented  by  the  officers  of  trades  unions  than 


HOURS  OF  LABOR  REDUCED.  429 

were  ever  inaugurated  by  them.  It  is,  however,  through  their 
united  efforts  as  industrial  organizations  and  as  the  means  of 
concentrating  the  political  influence  of  their  class  to  promote  in 
a  multitude  of  ways  the  improvement  of  their  social  condition, 
that  the  trades  unions  have  done  their  best  work.  Take,  for  ex- 
ample, the  reduction  of  the  hours  of  labor  ;  this  they  have  persist- 
ently advocated  for  more  than  forty  years,  and  in  spite  of  the 
almost  united  opposition  of  the  employing  class,  have  succeeded  in 
shortening  the  working  time  in  almost  every  civilized  country,  in 
many  instances  from  fourteen  to  ten  and  nine,  and  in  some  cases 
to  eight,  hours  a  day.  It  is  due  to  their  efforts  that  night-work 
for  women  and  children  in  factories  was  prohibited,  education  for 
working  children  secured,  and  the  truck  system  with  numerous 
other  degrading  features  of  the  factory  system  abolished.  It 
may  indeed  be  said  that  nearly  all  the  improvements  in  the  sani- 
tary and  social  condition  of  modern  workshops  which  have  taken 
place  during  the  last  generation  are  directly  or  indirectly  the  re- 
sult of  the  indefatigable  efforts  of  labor  combinations.  The  rise 
of  wages  is  the  secondary  effect  of  these  social  improvements, 
which  are  simply  so  much  added  opportunity  for  individual 
development. 

It  is  not  pretended  that  these  organizations  furnish  the  only 
social  opportunity  the  laborer  enjoys  ;  it  is  of  course  true  that  he 
obtains  some  share  in  the  benefit  arising  from  the  general  progress 
of  society,  but  the  degree  in  which  he  is  thus  benefited  largely  de- 
pends upon  the  social  preparation  he  receives  in  his  own  special 
sphere.  Suppose,  for  example,  the  mass  of  laborers  continued 
to  work  in  an  unwholesome  atmosphere  under  demoralizing  con- 
ditions for  twelve  or  more  hours  a  day,  and  to  spend  their  nights 
in  dismal  tenements,  compared  with  which  a  very  ordinary  saloon 
is  a  wholesome  attraction.  The  general  culture  of  society  would 
have  but  a  very  slight  influence  upon  their  social  life.  This  much- 
needed  preparatory  social  opportunity  is  what  the  trades  union 
largely  supplies.  It  does  this  first  through  the  social  intercourse 
and  inspiration  it  directly  furnishes  within  its  organization,  and 
next  by  its  persistent  efforts  to  modify  the  form  of  labor  and 
diminish  the  amount  of  time  the  workshop  shall  exact  from  the 
laborer's  life,  and  by  increasing  that  which  is  added  to  it  by 
leisure,  and  the  general  humanizing  influences  of  society.  Labor 


430  CHARACTER  THE  BASIS  OF  WAGES. 

combinations,  therefore,  tend  to  promote  the  increase  of  wages  in 
the  most  truly  economic  way  possible,  which  is  by  stimulating  the 
growth  of  the  laborer's  social  wants  and  desires,  and  by  promo- 
ting industries,  education,  and  the  possibility  of  united,  intelligent 
action  in  economic  and  social  affairs. 

There  is  no  force  in  society  that  can  secure  a  permanent  rise 
in  wages  unless  the  social  necessity  for  it  is  previously  developed. 
When  strikes  take  place  for  an  increase  of  wages,  or  any  other 
object,  before  the  demand  of  a  considerable  portion  of  the  laborers 
has  ripened  into  a  necessity  for  it,  they  generally  fail.  It  is  always 
the  most  intelligent  and  characterful,  whose  habitual  consumption 
presses  the  hardest  against  their  income,  who  are  the  most  cautious 
about  entering  upon  a  strike,  and  the  most  persistent  in  their  en- 
durance after  the  conflict  commences.  On  the  other  hand,  that 
portion  of  the  class  which  has  a  little  bank  account  or  a  mortgaged 
cottage,  are  the  first  to  surrender  when  the  real  hardships  of  the 
struggle  begin  to  appear.  The  reason  for  this,  however,  is  not 
that  they  are  inherently  less  heroic  than  the  others,  but  that  the 
advance  in  their  standard  of  living  has  not  outgrown  their  wages 
to  the  same  extent.  Consequently,  the  hardships  arising  from 
the  insufficiency  of  their  wages  are  less  severe  than  those  of  the 
others  ;  hence  their  early  surrender.  In  other  words,  their  effort 
to  obtain  the  advance  is  relatively  weak  because  the  consciousness 
of  its  necessity  is  relatively  slight.  And,  conversely,  those  whose 
necessary  expenditures  press  the  hardest  upon  their  incomes 
suffer  the  greatest  inconvenience  from  the  smallness  of  their 
wages,  and  hence  will  endure  correspondingly  great  hardships  in 
the  efforts  to  obtain  an  increase. 

It  is,  however,  to  the  ill-advised  strikes  and  other  rash  conduct 
of  trades  unions  that  we  are  usually  referred  as  evidences  of 
their  evil  influence.  We  are  told  that  they  are  dictatorial,  that 
they  arbitrarily  disturb  trade  and  industry,  destroy  the  profits  of 
capital,  and  involve  untold  hardship  upon  the  laboring  class  by 
loss  of  wages.  It  is,  indeed,  one  of  the  favorite  themes  of  the 
opponents  of  trades  unions  to  foot  up,  periodically,  how  much 
the  laborers  have  lost  in  wages  through  strikes,  and  to  point  out 
that  they  are  the  dupes  of  dishonest  leaders. 

This  method  of  estimating  the  social  and  economic  merits  of 
labor  unions  is  at  once  specious  and  misleading.  Judged  by  such 


GAIN  AND  LOSS  BY  STRIKES.  431 

a  standard,  almost  every  great  movement  for  social  and  political 
reform  would  have  to  be  voted  a  failure.  The  Wat  Tyler  insur- 
rection, the  uprising  of  the  Roundheads  against  Charles  I.,  the 
Protestant  Reformation,  the  Revolution  of  1688,  the  French  and 
American  Revolutions,  and  our  Civil  War,  all  cost  more  finan- 
cially than  was  immediately  realized  from  them.  But  if  the  results 
of  these  struggles  are  estimated  in  their  permanent  effect  upon 
social  well-being,  they  were  all  great  successes,  yielding  indefi- 
nitely more  in  benefits  than  they  cost  in  sacrifice. 

So  it  is  with  labor  unions,  notwithstanding  their  many  mis- 
takes. It  is  a  great  error  to  assume  that,  because  a  strike  fails 
to  accomplish  the  specific  object  for  which  it  was  inaugurated, 
the  money  and  energy  expended  upon  it  are  wasted.  On  the 
contrary,  the  educational  effect  of  an  unsuccessful  strike  on  the 
employer  and  the  public,  as  well  as  on  the  laborer,  is  often  worth 
more  than  all  it  costs.  But  if  these  efforts  are  judged  by  their 
permanent  effect  upon  the  material  and  social  well-being  of  the 
masses,  they  will  have  to  be  regarded  as  great  successes  even  in 
a  financial  sense,  to  say  nothing  of  the  social  and  moral  advantage 
resulting  from  the  reduced  working  hours  and  improved  indus- 
trial conditions  they  have  secured.  The  increase  of  wages  during 
the  last  forty  years  is  many  times  greater  than  all  that  has  been 
spent  or  lost  through  strikes  since  the  dawn  of  the  factory  sys- 
tem. Indeed,  the  amount  the  laborers  in  this  country  and  Eng- 
land have  received  through  increased  wages  since  1850  is  nearly 
equal  to  all  they  received  during  the  previous  fifty  years.  But 
what  is  still  more  important,  all  this  gain  will  not  only  continue 
in  the  future  without  any  further  effort,  but  will  furnish  a  power- 
ful lever  by  which  to  obtain  still  greater  improvement. 

The  laboring  classes  therefore  are  not  permanently  impover- 
ished by  what  they  pay  into  unions  or  lose  in  strikes.  It  should 
be  remembered  that  their  losses  are  only  temporary,  while  their 
gains  are  permanent.  Thus  when  they  strike  for  an  increase 
of  wages  or  reduction  of  hours,  if  they  fail  to  obtain  that  specific 
object  their  loss  is  slight,  since  their  future  wages  are  not  reduced 
nor  their  hours  increased  on  that  account ;  but  if  they  succeed 
they  obtain  a  permanent  gain.  In  other  words,  when  they  fail 
they  practically  hold  their  own,  and  when  they  succeed  they 
gain  forever. 


432  UNFAIR   CRITICISMS. 

That  many  strikes  are  unwisely  inaugurated  and  badly  man- 
aged would  be  readily  admitted  by  those  acquainted'  with  the 
history  of  labor  organizations.  Nor  will  it  be  disputed  that  dis- 
honest men,  or  men  otherwise  conspicuously  unfit  for  leader- 
ship, sometimes  get  at  the  head  of  labor  organizations.  But  is 
this  not  true  of  every  other  form  of  social  and  industrial  organ- 
ization ?  Are  capitalist  organizations  free  from  these  charges  ? 
Do  they  not  frequently  act  rashly  and  undertake  enterprises  in 
which  thousands  of  innocent  confiding  investors  (often  women, 
children,  and  orphans)  lose  their  little  all  ?  Have  they  not  their 
Grants  and  Wards,  whose  rash  (or  worse)  conduct  often  disturbs 
the  whole  commercial  and  industrial  world,  bringing  bankruptcy 
and  ruin  to  large  numbers  ? 

Cannot  the  same  impeachment  be  urged  with  quite  as  much 
truth  against  political  combinations,  social  clubs,  and  even 
churches  ?  Would  any  one  venture  to  say  that  because  there 
are  dishonest  railroad  presidents  and  corporation  treasurers,  the 
combination  of  capital  should  be  prohibited,  and  because  there 
are  dishonest  and  incompetent  deacons  and  ministers  church 
associations  should  disband  ?  Why  should  working  men  be  ex- 
pected to  be  more  honest  and  wise  than  any  other  class  in  the 
community?  Why  should  perfection  be  demanded  of  them,  when 
liability  to  err  is  conceded  to  every  one  else  ?  Since  all  other 
social  institutions  are  to  be  judged  by  their  virtues,  why  should 
labor  organizations  be  judged  only  by  their  mistakes  ?  Considering 
their  limited  opportunities  and  the  extent  of  the  forces  arrayed 
against  them,  the  wonder  is  not  that  the  laborers  have  made  so 
many  mistakes,  but  rather  that  they  have  succeeded  at  all. 

Another  characteristic  of  labor  combinations,  which  should  not 
be  overlooked,  is  the  marked  improvement  in  their  methods  of 
dealing  with  industrial  disputes.  In  proportion  as  trades  unions 
become  more  complete  in  their  organizations,  and  their  members 
more  intelligent,  they  have  become  more  rational  and  conserva- 
tive in  their  attitude.  Whereas  physical  force,  often  involving 
the  destruction  of  life  and  property,  was  once  their  chief  means 
of  warfare,  they  now  mainly  rely  upon  reason  and  facts  as  their 
economic  weapons.  Consequently  we  find  to-day  that  in  those 
industries  where  trades  unions  are  best  organized  and  exercise 
the  greatest  influence,  strikes  are  fewest,  wages  are  highest,  hours 


TRADES  UNIONS  NECESSARY.  433 

•IP 
of  labor  shortest,  and  the  relation  between  laborers  and  employers 

the  most  confidential  and  harmonious. 

Trades  unions  therefore  are  not  only  legitimate,  economic,  and 
social  institutions,  but  they  are  an  integral  part  of  the  industrial 
organization  of  modern  society.  They  are  the  economic  counter- 
part of  the  combination  of  capital,  and  their  existence  and  devel- 
opment are  equally  necessary  to  the  harmonious  development  of 
society.  It  is  an  entire  mistake,  therefore,  to  regard  trades  unions 
as  necessarily  a  menace  to  industry  and  social  welfare ;  they  are 
constitutionally  important  educational  institutions,  and  whether 
they  will  be  a  power  for  good  or  for  evil  in  society  depends  upon 
what  they  teach  and  how  they  teach  it.  Since  labor  organizations 
are  the  most  effectual,  and  nearly  the  only  means  of  furnishing 
the  opportunities  for  economic  education  to  the  wage  workers, 
instead  of  trying  to  degrade  and  suppress  them,  it  is  alike  the 
interest  and  duty  of  both  the  employing  class  and  the  community 
to  encourage  their  development  and  increase  their  usefulness.  If 
capitalists  would  devote  one  tenth  the  means  for  helping  labor 
unions  to  provide  for  more  comprehensive  and  correct  knowl- 
edge upon  economic  and  social  questions  that  they  devote  to 
opposing  them,  these  organizations  would  become  the  source  of 
sound  economic  education  and  the  training  schools  for  intelligent 
citizenship,  instead  of  being  the  nurseries  of  industrial  and  social 

antagonism. 
28 


SUMMARY  AND  CONCLUSION. 

IN  the  preceding  pages  I  have  endeavored  to  discuss  the  gen- 
eral principles  which  govern  the  economic  relations  of  society, 
and  to  indicate  briefly  their  application  to  practical  affairs.  It 
will  be  observed  that  this  treatment  of  the  subject  widens  the 
sphere  of  economics,  in  that  it  applies  these  principles  to  society 
instead  of  limiting  their  application  to  wealth  or  value.  There- 
fore instead  of  the  principles  of  physical  economics,  which 
political  economy  has  hitherto  taught,  we  have  the  principles  of 
social  economics,  a  system  which  recognizes  the  tastes,  habits, 
and  character  of  man,  as  the  source  of  all  economic  movement, 
and  the  development  and  perfection  of  man  as  the  goal  of  social 
evolution.  Since  this  is  a  departure  from  the  traditional  meth- 
ods of  discussing  economics  and  involves  the  consideration  of 
the  whole  subject  from  a  different  point  of  view,  it  may  be  well 
to  briefly  summarize  the  leading  principles  laid  down  in  each  of 
the  four  parts  as  follows  : 

Principles  of  Social  Progress. — Social  progress  is  here  consid- 
ered as  a  gradual  movement  of  society  towards  a  greater  definite- 
ness  of  economic  and  social  relations,  specialization  of  functions, 
and  interdependence  of  individuals  and  classes,  and  an  increase 
of  wealth,  power,  and  freedom  for  the  individual,  with  a  diminu- 
tion of  the  arbitrary  function  of  government.  This  movement 
has  two  characteristic  phases,  distinguishable  as  industrial  and 
social.  The  former  relates  to  the  means  of  sustaining  life,  and 
the  latter  to  the  mode  of  enjoying  life.  The  development  of 
these  two  phases  of  progress  in  society  is  indicated  respectively 
as  follows  :  In  economics  by  a  movement  towards  the  de-indi- 
viduation  and  aggregation  of  productive  force — both  of  labor 
and  capital, — the  individuation  of  management  and  responsi- 
bility, and  the  socialization  of  results  in  the  form  of  more,  better, 

434 


SOCIAL  AND  ECONOMIC  PROGRESS.  435 

and  cheaper  products.  In  society  and  politics  it  is  indicated  by 
a  movement  towards  increasing  the  sovereignty  of  the  individual 
and  diminishing  governmental  authority.  This  produces  two 
changes  in  the  laborer's  condition  :  one  specializes  and  limits 
his  economic  function,  the  other  generalizes  and  extends  his  indi- 
vidual and  social  function.  Thus  in  proportion  as  the  laborer's 
industrial  individuality  diminishes  and  he  loses  the  economic 
power  to  employ  himself,  his  social  and  political  individuality 
increases,  and  he  gains  the  power  to  control  his  employer  ;  and 
this  power  he  will  use  to  the  detriment  of  existing  interests  and 
institutions  if  his  well-being  is  neglected  or  impaired.  Therefore 
as  civilization  advances,  the  prosperity  and  safety  of  the  whole 
community  depend  more  and  more  upon  the  industrial  and  social 
welfare  of  the  laboring  classes.  The  correctness  of  this  view 
is  sustained  by  universal  history,  which  shows  that  civil  and 
political  freedom  have  everywhere  followed  the  material  pros- 
perity of  the  masses,  and  this  has  everywhere  been  characterized 
by  specialization  of  labor,  concentration  of  capital,  and  private 
responsibility  in  industrial  enterprise. 

Principles  of  Economic  Production. — Production  is  treated  as 
the  creation  or  increase  of  transferable  utility.  Since  nothing 
has  utility  which  does  not  serve  human  wants,  effective  desire  or 
consumption  is  the  cause  of  production.  Industrial  progress 
primarily  consists  in  cheapening  wealth,  the  test  of  which  is  the 
increase  of  material  well-being  obtainable  for  a  day's  labor.  It 
is  a  universal  law  in  economics,  that  productive  efficiency  is 
increased  and  wealth  is  cheapened  according  as  natural  forces 
are  substituted  for  labor.  Natural  forces  can  only  be  harnessed 
to  production  by  the  use  of  capital,  and  capital  can  only  be 
economically  employed  under  conditions  of  increasing  returns. 
Increasing  returns  are  only  possible  with  a  relatively  larger 
market,  and  this  depends  entirely  upon  the  increase  of  consump- 
tion per  capita  in  the  community.  Large  consumption,  which 
means  high-priced  labor,  is  one  of  the  prime  causes  of  cheap 
wealth. 

Value  is  here  treated  not  as  the  ratio  in  which  things  exchange 
for  one  another,  but  as  the  ratio  in  which  wealth  exchanges  for 
service.  Economic  prices  are  high  or  low,  things  are  dear  or 
cheap,  solely  in  proportion  as  a  smaller  or  larger  amount  of  them 


436  PRODUCTION  AND  DISTRIBUTION. 

will  exchange  for  a  day's  labor.  A  commodity  at  50  cents  in 
China, a  dollar  in  Russia,  or  $1.50  in  England,  maybe  very  much 
dearer  than  at  $2  in  America.  To  repeat  this  in  another  form,  the 
economic  status  of  wealth  is  determined  absolutely  by  the  ratio  in 
which  it  will  exchange  for  service  as  an  economic  equivalent.  The 
basis  upon  which  economic  equivalents  are  determined  is  not 
quantity  but  cost.  Therefore  economic  value  or  prices  are  not 
determined  by  the  ratio  between  demand  and  supply,  but  by  the 
cost  of  production.  Under  free  competition  in  open  market,  the 
price  of  any  given  commodity  tends  towards  uniformity,  on  the 
basis  of  the  cost  of  producing  the  dearest  portion  of  the  supply  in 
that  market.  Cost  of  production  is  determined  not  by  the  quan- 
tity of  labor  expended,  but  by  the  aggregate  cost  of  labor  directly 
or  indirectly  devoted  to  its  production,  and  since  large  consump- 
tion induces  the  economic  use  of  machinery,  which  saves  labor 
and  diminishes  the  cost  of  production,  high  wages  promote  low 
prices. 

Principles  of  Economic  Distribution. — The  distribution  of  wealth 
is  not  a  distinct  economic  function,  but  an  inseparable  part  of 
the  process  of  production.  Economic  distribution  takes  place  in 
the  form  and  order  of  wages  (and  salaries),  rent,  interest,  and 
profit.  Consequently,  the  social  theories  based  upon  the  assump- 
tion that  wages  are  determined  by  what  remains  of  the  product 
after  rent,  interest,  and  profit  are  deducted,  as  held  by  socialists, 
and  practically  supported  by  Jevons  and  Walker,  are  erroneous. 
Wages  differ  from  rent,  interest,  and  profit,  in  that  they  are 
economically  cost,  while  rent,  interest,  and  profit  are  surplus. 
Wages,  being  the  price  of  labor,  are  determined  by  the  same  law 
as  the  price  of  commodities,  namely,  the  cost  of  furnishing  the 
dearest  portion  of  the  necessary  supply,  and  are  necessarily 
added  to  the  price  of  commodities  ;  while  rent,  interest,  and 
profit,  being  surplus,  are  not  items  in  the  cost  of  production 
by  which  the  price  is  determined,  hence  do  not  enter  into  the 
consumer's  price  of  commodities,  so  that  prices  are  not  higher 
or  wages  lower  by  virtue  of  rent,  interest,  and  profit.  The 
chief  problem,  therefore,  to  consider  in  connection  with  the  dis- 
tribution of  wealth  is  wages.  To  increase  wages  is  to  increase 
the  income  of  all  who  participate  in  productive  enterprise,  and 
this  in  turn  extends  the  market  for  products,  diversifies  industry, 


FOREIGN  AND  DOMESTIC  RELA  TION$.  437 

and  makes  the  various  forms  of  surplus  possible.  In  other 
words,  the  prosperity  of  all  the  other  classes  of  the  community 
finally  depends  upon  that  of  the  wage-receiving  class.  Con- 
sequently, the  economic  problem  of  society  is  not  one  of  re- 
ducing rents,  regulating  interest,  or  abolishing  profit,  but  it  is  a 
problem  of  increasing  wages  which  finally  depend  upon  the 
wants,  habits,  and  character  of  the  laboring  classes. 

Principles  of  Practical  Statesmanship. — In  applying  the  princi- 
ples of  economics  to  the  practical  affairs  of  society,  it  should  be 
observed  first  of  all  that  the  functions  of  government  are  es- 
sentially of  a  protective,  educational,  and  judiciary  character. 
Therefore,  while  practical  statesmanship  has  to  deal  with  an 
infinite  variety  of  circumstances,  the  machinery  of  government 
should  be  employed  only  upon  the  principle  of  protecting  or 
enlarging  the  industrial,  social,  or  political  opportunities  of  the 
individual.  This  should  be  the  test  of  every  change  in  public 
policy  of  whatever  character. 

Applied  to  international  relations,  this  principle  involves  what- 
ever is  necessary  to  secure  to  the  people  of  a  nation  the  op- 
portunities for  developing  their  highest  industrial  and  social 
possibilities.  This  may  take  the  form  of  protecting  the  people 
against  forceful  molestation  by  military  invasion  or  an  encroach- 
ment upon  their  political  or  territorial  rights,  or  it  may  take  the 
form  of  protecting  them  against  an  industrial  invasion,  in  which 
the  development  of  their  home  industries  is  menaced  through  the 
underselling  of  their  products  by  those  of  lower-paid  labor  in 
less  civilized  countries. 

Applied  to  domestic  relations,  the  principle  implies  whatever 
is  necessary  to  protect  the  individual  in  all  the  rights  and  privi- 
leges he  now  enjoys,  and  to  increase  in  every  possible  way  the 
opportunities  for  developing  his  character  and  capacity  for 
assuming  a  still  greater  degree  of  individual  responsibility  and 
freedom  in  every  sphere  of  life.  In  the  first  place,  the  policy  of 
government  should  always  be  to  encourage  individual  enterprise 
by  securing  the  greatest  possible  freedom  to  capital  consistent 
with  business  integrity  and  social  safety.  In  other  words,  it 
should  be  the  guardian  of  the  interests  of  the  community  without 
assuming  business  responsibility.  In  the  next  place,  it  should 
not  only  protect  the  laborer's  industrial  and  social  rights,  but  it 


438  POLICY  FOR  THE  FUTURE. 

should  employ  all  possible  means  for  improving  his  industrial 
and  social  condition. 

This  is  of  fundamental  importance  :  (i)  because  the  laboring 
classes  constitute  the  great  mass  of  the  community,  and  therefore 
most  truly  represent  society  ;  (2)  because  under  democratic  in- 
stitutions, public  integrity,  political  and  social  freedom,  depend 
upon  the  intelligence  and  character  of  the  masses  ;  (3)  because 
under  factory  methods  of  production  material  prosperity  and 
social  welfare  finally  depend  upon  the  consumption  of  wealth  by 
the  laboring  classes. 

Thus  it  appears  that,  whether  we  consider  the  social  question 
from  the  stand-point  of  the  general  progress  of  society,  as  indicated 
by  the  advance  of  personal,  political,  and  religious  freedom,  or 
from  the  standpoint  of  industrial  progress,  as  indicated  by  the 
development  of  labor-saving  and  wealth-cheapening  methods  of 
production  and  the  more  equitable  distribution  of  the  products 
of  industry,  as  indicated  by  the  increase  of  wages,  or  from  the 
standpoint  of  practical  statesmanship,  as  indicated  by  legislation, 
we  find  it  all  ultimately  resolves  itself  into  the  problem  of 
developing  the  character,  individuality,  and  social  life  of  the 
masses.  When  this  fact  shall  become  the  accepted  basis  of 
public  policy,  the  true  economic  relation  of  the  laborer  to  the 
welfare  of  society  will  have  been  recognized  for  the  first  time,  and 
one  great  step  will  have  been  taken  towards  the  solution  of  the 
social  problem. 

Herewith  is  reached  the  end  of  our  journey  along  the  paths  of 
industrial  human  development.  Dimly  lighted  as  it  has  been  by  the 
researchers  and  thinkers  of  the  past,  our  way  has  been  found 
only  by  closely  following  the  light  of  facts.  No  theories  have 
been  allowed  to  stand  against  fact.  No  reasonings  have  been 
sustained  in  spite  of  fact.  No  propositions  have  been  given 
credence  contrary  to  fact.  If  novel  and  paradoxical  conclusions 
have  been  reached,  it  has  been  in  humble  obedience  to  facts.  If 
we  have  found  the  solution  of  many  problems  hitherto  dark  and 
tangled,  it  is  fact  that  has  unravelled  the  complexities  of  the 
subject.  If  many  questions  heretofore  explained  in  tortuous 
methods  difficult  to  follow  have  been  given  the  guise  of  sim- 
plicity, it  is  because  facts  have  been  able  to  furnish  a  simple 
explanation. 


A    BRIGHTER  FUTURE.  439 

That  this  book  issues  in  a  system  of  social  development  at 
once  pleasant,  profitable,  and  promising  the  greatest  good,  is 
agreeable  to  me,  and  should  be  to  the  reader.  It  may  at  first 
repel  orthodox  experts  in  political  economy  who  have  thought 
so  long  on  the  old  dismal  lines  that  nothing  agreeable  seems  to 
them  possible  from  the  workings  of  economic  law.  Steeped  in 
the  dreary  reflections  of  Malthus,  Ricardo,  Mill,  and  the  rest, 
they  may  indeed  reject  with  scorn  any  thing  that  opens  a  more 
cheerful  view.  But  the  world  actually  goes  from  good  to 
better  perpetually,  despite  their  awful  predictions.  Men  are 
richer,  brighter,  more  virtuous  and  happy,  wiser,  stronger, 
and  healthier  than  they  ever  were,  and  we  have  simply  pointed 
out  the  principles  that  have  brought  them  to  this  finish.  The 
human  race  is  on  the  road  to  better  estates.  Long  ago  it  set 
out  on  its  unknown  and  perilous  journey.  At  the  time  when 
the  first  men  learned  to  trust  their  brains  instead  of  their  muscles 
the  march  was  begun,  and  still  it  goes  on.  Every  day  sees 
some  new  attainment  of  the  human  mind,  some  new  conquest 
over  its  environment,  and  every  day  sees  more  and  more  men 
included  in  the  general  enrichment  and  enlightenment.  The 
world  becomes  more  peaceful,  more  industrial.  The  rewards  of 
industry  become  greater  ;  the  general  comfort  is  increased  ;  the 
powers  of  production  prevail ;  education  becomes  more  general 
and  varied  ;  nature  is  subdued  and  harnessed  ;  political  freedom 
waxes,  civil  broils  decline,  occupations  are  diversified,  cities 
multiply,  vast  organizations  are  formed  to  contribute  to  human 
welfare,  and  machineries  proffer  their  million  fingers  swifter 
than  arrows,  surer  than  muscles,  more  tireless  than  thought,  to 
the  workshops  of  mankind.  There  are  formed  the  countless  ob- 
jects of  human  desire,  most  potent  of  all  earthly  forces.  Steam 
drives  the  machinery,  but  human  desire  drives  the  steam.  Out 
of  man  the  movement  springs,  for  him  it  labors,  him  it  improves, 
and  there  is  no  limit  to  it.  It  has  the  nature  of  the  infinite. 
The  more  it  gets,  the  more  it  wants  ;  the  more  it  does,  the  more 
it  aspires  to  do  ;  the  higher  its  advancement,  the  higher  mounts 
its  ambition. 

Still  no  advantage  is  gained  by  magical  methods  such  as 
those  suggested  by  our  modern  dreamers  of  dreams,  but  all  is 
accomplished  by  the  well-known  and  powerful  methods  al- 


44O  THE    VIRTUE   OF  NEW  DESIRES. 

ready  at  work  among  us — our  present  benefactors.  No  sequestra- 
tion of  the  rents  of  land,  such  as  Mr.  Henry  George  is  pleased 
to  advocate,  has  any  share  in  the  advance.  How  could  it  have, 
when  one  sees  that  the  more  land  there  is  to  the  person  the 
worse  off  all  persons  are  ?  The  steppes  and  the  untilled  prairies 
are  the  habitation  of  the  idle  nomad  and  the  painted  savage. 
Miles  of  land  per  man,  but  no  wealth.  Men  are  richest  where 
each  has  least  land,  as  in  the  teeming  cities.  "  To  every  man  his 
own  farm  "  is  a  motto  of  barbarism.  Anti-poverty  societies  would 
find  plenty  of  land  their  death-warrant.  It  is  to  escape  the  bovine 
monotony  of  farm  life  that  men  throng  to  cities  and  towns,  where 
intelligence  is  general  and  the  resources  of  the  individual  enlarge, 
where  the  interchange  of  human  sympathies  and  criticism  stimu- 
lates thought  and  develops  civility,  where,  as  in  a  beehive,  socia- 
bility supplants  the  dull  hut  of  the  lonely  agriculturist,  with  whom 
new  thoughts  are  as  rare  as  roses  in  January. 

Nor  is  progress  to  be  speeded  after  any  such  fashion  as  Mr. 
Bellamy  has  pictured,  nor  by  the  methods  advocated  by  socialists. 
Work  and  system,  organization  and  struggle  for  better  materials, 
more  productive  energies,  wiser  laws,  clearer  principles,  nature 
better  understood  and  made  more  obedient,  will  always  be  the 
real  agencies  of  amelioration.  And  by  the  use  of  these  means 
more  intelligently  applied  and  more  completely  developed,  the 
human  race  may  legitimately  and  soberly  expect  to  reach  the 
goal  of  its  most  sanguine  expectations.  To  reach  it  quickly  the 
main  thing  is  to  widen  human  desires.  The  true  ideal  is  that 
everybody  should  want  every  thing  enough  to  be  willing  to  work 
for  it  and  to  get  it,  since  this  is  the  source  and  fountain  of  prog- 
ress. No  wants  means  no  advance. 

The  first  economic  duty  of  society  and  government  is  con- 
stantly to  stimulate  desire.  If  the  English  in  India  could  make 
the  Hindoo  laborer,  want  more  things,  they  could  soon  civilize 
him  up  to  their  own  standard.  If  the  Russian  peasants  were  not 
content  with  so  little,  the  development  of  Russia  might  run  on  at 
equal  speed  with  that  of  the  United  States.  If  our  Indians  could 
only  be  made  to  want  houses  and  steam  machinery  and  good 
clothes  enough  to  work  for  them,  the  Indian  problem  would  solve 
itself  in  a  single  decade.  If  the  Southern  negro  could  be  made 
discontented  with  his  slovenly  hut,  his  scanty  clothing  and  food, 


WEALTH  FOR  ALL   IS  CHEAPER    THAN  POVERTY.     44! 

the  race  problem  would  dissolve  ;  and  if  our  own  poorer  classes 
could  only  be  made  to  crave  better  homes,  better  amusements, 
better  food,  with  better  surroundings,  the  problem  of  poverty 
would  soon  disappear,  since  they  would  universally  begin  to  get 
them. 

To  desire  things  is  the  first  step  in  social  progress,  and  this  de- 
sire no  sooner  sets  in  with  force  than  it  begins  to  establish  a  new 
form  of  society.  More  wants  means  more  factories,  more  ma- 
chinery, cheaper  products,  our  laborers  more  steadily  employed, 
capitalists  more  comprehensive  and  adventurous.  Enterprises 
on  an  ever  enlarging  scale  are  called  for  to  produce  the  desired 
result, — enterprises  surpassing  in  their  extent  all  the  trusts  yet 
devised,  controlled  by  individual  management,  under  abler  cap- 
tains of  industry  than  have  yet  appeared,  and  delivering  cheaper 
products  to  be  used  by  larger  proportions  of  the  people. 

The  laborer  must  become  more  specialized  as  a  laborer,  though 
more  generalized  as  a  man.  His  welfare  must  be  seen  to  be 
the  welfare  of  the  community,  because  he  is  really  seven  tenths 
of  the  community,  and  his  interest  must  be  more  and  more 
considered  by  all  classes,  as  carrying  with  it  the  welfare  of  the 
rest.  When  employers  understand  their  true  interest  the  stupid 
and  stolid  resistance  which  they  have  long  made  to  his  progress 
will  give  way  to  a  genial  and  hearty  co-operation  in  all  that  makes 
for  his  advantage.  They  will  realize  that  in  his  advancement  lies 
their  own  prosperity. 

Then  the  future  will  be  much  brighter  and  happier,  and  larger 
numbers  of  men  will  succeed  to  a  secure  and  pleasurable  career. 
Since  fifty  years  of  devotion  to  industrial  pursuits  have  wrought 
the  wonders  we  know,  and  led  mankind  from  the  days  of  plague, 
pestilence,  and  famine,  from  general  illiteracy,  isolation,  and 
superstition  into  the  prosperity  and  progress  of  to-day,  what  will 
it  be  when  a  thousand  years  of  intelligent  progress  have  wrought 
out  the  possibilities  of  human  development  ?  When  nature  well 
understood  and  well  harnessed  to  the  supply  of  millions  of  human 
wants  shall  furnish  the  riches  of  her  storehouse,  abundance  for 
all  will  be  more  easily  obtained  than  is  the  little  which  the  great 
mass  of  mankind  now  receives. 


«..  -  •  /.,.«..... 


INDEX. 


Agriculture,  origin  of,  7  ;  not  the  basis 
for  price  of  manufactured  products, 
IO2  ;  its  price  finally  determined  by 
cost  of  production,  133,  134,  135  ; 
unfavorable  to  savings,  212  ;  unlike 
manufacture,  323 

Altruism,  conscious  and  unconscious, 
20 


B 


Bastiat,  his  economic  cycle,  in 
Brassey,  Thomas,  142,  143 
Buckle,  18,  28,  40,  43,  50,  55 
Business   depressions,    conditions  un- 
der which  they  occur,  382  ;  distin- 
guished from  famines  and    panics, 
383  ;  historical  facts,  384  ;  cause  of, 
386  ;    outcome  of  false  economics, 
390  ;  remedy  for,  386-396 


Cairnes,  109 

Capital,  the  term,  how  employed,  75  ; 
not  the  result  of  abstinence,  77,  79, 
243  ;  an  effect  of  social  progress, 
80  ;  cause  of,  85,  89  ;  receives  the 
equivalent  of  its  cost,  123  ;  its  na- 
ture and  function,  124,  146  ;  success- 
ful use  of,  has  not  been  explained, 
147  ;  no-interest  capital,  239,  240  ; 
movement  of,  241,  242  ;  why  cap- 
ital should  command  interest,  243  ; 
benefits  of  concentration  of,  264, 
276,  279,  348  (see  also  Combina- 
tion of  capital),  399-415 

Charity,  static  nature  of,  its  relation 
to  individuality,  310 


Civilization,  modern,  begins  with  the 
"artificers"  of  the  ninth  century, 
9  ;  mercantile  class  create  a  new  era 
in,    10  ;  basis  of  a  progressive,  14 
tendency  of,    21  ;  how  caused,  25 
26 ;   ancient  and   modern,    28-31 
criterion  of,  31,  86  ;  fall  of  ancient, 
32  ;    influence   of    the    free    cities 
upon,  38  ;  ancient  and  modern,  com- 
pared,   86  ;    cause   of    social   deca- 
dence, 88  ;  how  related  to  capital, 

4*5 

Clark,  J.  B.,  144,  146,  192,  195,  197, 
199,  308,  309 

Combination  of  capital,  its  effect  on 
production,  399  ;  its  effect  on  com- 
petition, 400,  405  ;  its  economic 
movement,  406,  407  ;  its  effect  on 
wages  and  prices,  407,  408,  409, 
410,  412  ;  abuses  of,  413,  414 

Combination  of  labor,  inconsistent 
attitude  toward,  416,  417  ;  its  effect 
upon  the  laborer,  418  ;  its  relation 
to  right  of  contract,  418-423; 
sources  of  opposition  towards,  424  : 
it  imitates  capital,  425  ;  it  increases 
social  opportunity,  426  ;  its  effect 
upon  the  laborer's  intelligence  and 
character,  427  ;  its  relation  to  wages, 
428  ;  its  bearing  on  strikes,  429  ; 
how  it  affects  wages,  430  ;  abuse  of, 
431  ;  permanent  effects  of,  431-433 

Competition,  its  economic  character, 
329  ;  true  basis  of,  international, 
335  ;  the  law  of,  337  ;  false  notions 
about,  349-354  ;  relation  of,  to  com- 
bination of  capital,  401  ;  influence 
of,  not  dependent  upon  number  of 
competitors,  402  ;  its  relation  to 
combination  of  capital,  402  ;  not 
dependent  upon  actual  presence  of 


444 


INDEX. 


competitors  in  the  market,  403  ;  in- 
fluence of,  potential,  404  ;  effect  of, 
yjptential  on  large  combinations,  404 

Comte,  Aug.,  18 

Consumption,  Adam  Smith's  miscon- 
ception of,  77  ;  the  basis  of  produc- 
tion, 80  ;  the  measure  of  want,  81  ; 
the  cause  of  production,  82  ;  its  re- 
lation to  labor-saving  methods,  84, 
85  ;  its  relation  to  production,  146  ; 
wages  the  measure  of,  148  ;  how 
arrested,  388  ;  errors  regarding,  389 

Cost,  variation  in,  explains  law  of 
prices  and  of  profits,  249 


I) 


Demand  and  supply,  doctrine  stated, 
100  ;  based  on  agricultural  phe- 
nomena, 101  ;  not  applicable  to 
manufactured  products,  103  ;  Ri- 
cardo's  views,  104  ;  economic  price 
not  determined  by,  107 ;  McCul- 
loch's  view,  108';  Cairnes'  miscon- 
ception of,  109  ;  their  relation  to 
consumption  and  production,  in  ; 
their  economic  relation,  114 

Discoveries,  two  kinds  of,  87 

Distribution,  not  separable  from  pro- 
duction, 175  ;  definition  of,  176  ; 
four  important  facts  concerning, 
178  ;  economic  order  of,  178-^3 

Draper,  18,  31,  32 


E 


Employer,  reason  for  the  antagonistic 
attitude  of,  toward  laboring  class, 
390 

Enforced  Idleness,  how  produced  and 
how  prevented,  395,  396 

Ethics,  position  of,  in  social  progress, 

19  ;    prevailing    misconception    of, 

20  ;  basis  of,  20 ;  evolution  of,  24 


Factory  system,  rise  of,  56  ;  its  rela- 
tion to  the  labor  market,  327  ;  un- 
necessary phases  of,  385  ;  effect  of, 
on  relation  of  the  laborer  to  the  cap- 
italist, 391 

Family,  origin  and  development  of,  6, 
7  ;  marriage  by  purchase,  by  cap- 
ture, its  growing  sacredness,  8  ;  the 
tribal,  patriarchal,  and  manorial,  9 

Feudal  system,  its  development,  9  ; 
superseded  by  national  life,  10  ;  its 


abolition,  43  ;  character  of,  in  Eng- 
land, 44 

Financial  panics  (see  Business  de- 
pressions). 

Fiske,  John,  ideas  of  progress,  law  of 
history,  3,  16  ;  his  view  of  English 
race,  47 

Free  cities,  their  rise  and  growth,  37, 
38  ;  their  fall,  39-43  ;  firmly  estab- 
lished, in  England,  43  ;  the  homes 
of  progress,  50  ;  their  relation  to 
Protestantism,  54  (see  also  Index  to 
"  Wealth  and  Progress  "). 

Freedom,  political  and  religious,  in 
England,  55 

Free  towns,  social  importance  of,  10  , 
their  influence,  34 ;  their  wealth, 
35  ;  their  condition  in  England, 
49,  50 

Free  trade,  encourages  uneconomic 
competition,  334  ;  is  promoted  by 
protection,  360  (see  also  Laissez 
faire). 

G 

Giffen,  265,  266,  268 

Government,  its  nature  and  functions 

(see  State). 
Guizot,  18,  34,  49,  55 


II 


Hallam,  34,  37,  39,  40,  41,  44,  46,  50, 

5i 
Hanseatic  league,  the,  formation  of, 

38 
Hussite  war,  50,  51  ;  cause  of  failure 

of,  51 

I 

Industries,  economic  selection  of,  made 
possible  by  protection,  359 

Intellect,  the,  its  function,  16  ;  its  re- 
lation to  human  wants,  18 

Interest,  analogous  to  rent,  237  ; 
Walker's  view  of,  238-243  ;  true 
theory  of,  243-247  ;  its  relation  to 
civilization,  248 

J 

Jacquerie,  the,  its  analogy  to  peasant 
War,  unlike  the  English  insurrec- 
tion, 52 

Jevons,  91,  158,  160,  163,  178,  179 

K 
King  Gregory,  161,  191 


INDEX. 


445 


Labor,  hours  of,  reduced,  57  ;  rela- 
tion of,  to  natural  forces,  76  ;  price 
of,  not  fixed  by  supply  and  demand, 
106  ;  its  price  depends  on  its  quali- 
ty, 136  ;  cost  and  quantity  of,  con- 
founded, 141  ;  its  relation  to  cost  of 
production,  143  ;  its  relation  to 
value,  143  ;  cost  of,  determined  by 
laborers'  standard  of  living,  391  ; 
combination  of  (see  Combination 
of  labor,  417). 

Laborer,  the,  his  economic  individu- 
ality diminished  by  division  of  la- 
bor, ii  ;  his  political  and  social 
power  increased,  12-14  I  acquires 
right  to  vote,  57  ;  test  of  his  im- 
provement, 355,  356  ;  attitude  of  the 
employing  class  toward,  389  ;  his 
standard  of  living,  how  related  to 
business  depressions,  394  ;  the  past, 
present,  and  future  of  his  industrial 
condition,  418,  419 

Lais sez  fair e,  116,  117;  unscientific 
nature  of,  284,  285,  319  ;  its  plausi- 
bility, 286,  289-294,  344 

Law,  economic,  its  meaning,  116 

Lubbock,  Sir  John,  6,  7 

M 

Machinery,  important  facts  connected 
with,  146-148  ;  relation  of,  to  labo- 
rers employed,  266 

Macleod,   73,  163 

Maine,  7-9 

Manufacture,  creates  mercantile  class, 
48  ;  its  effect  upon  industry,  56  ; 
prices  of,  not  governed  by  supply 
and  demand,  102  ;  necessary  to 
national  development,  321  ;  condi- 
tion of  its  growth,  324  ;  how  af- 
fected by  protective  tariff,  357-359 

Market,  importance  of,  83,  85,  89, 
144,  147  ;  laborer's  consumption 
necessary  to,  149  ;  superiority  of 
home,  325-329,  335,  342-349-  357~ 
359 

Marx,  Karl,  177,  194,  195,  238,  251, 
252,  254-259,  261,  262,  277 

McCulloch,  108 

Mill,  John  Stuart,  63,  64,  68,  75,  77, 
92,  93,  179,  228,  249 

Money,  nature  of,  150-152  ;  not  iden- 
tical with  wealth,  151  ;  definition 
of,  153  ;  function  of,  154  ;  evils  of 
fluctuation,  154,  155  ;  value  of ,  156  ; 
essential  attributes  of,  157  ;  double 


and  tabular  standard  of,  158-160 ; 
difference  between  paper  and  me- 
tallic, 162,  163  ;  depreciation  of, 
162-166  ;  best  kind  of,  164  ;  why 
gold  and  silver  are  necessary,  165  ; 
should  be  furnished  by  private  en- 
terprise, 167-172 

Morality,  its  relation  to  civilization,  16 

Mulhall,  161,  341 

N 

Natural  law,   misuse  of    term,    288  ; 

term  defined,  289 
Natural  selection,  290,  291 


Parliament,  the  English,  origin  of, 
49  ;  permanence  of,  50  ;  representa- 
tion in,  57 

Paternalism,  objections  to,  283,  284  ; 
fails  to  develop  individuality,  311  ; 
its  historic  movement,  319 

Perry,  65,  69,  74,  179,  351 

Prices,  how  they  rise,  112  ;  order  of 
phenomena,  114  ;  primary  law  of, 
118  ;  cost,  the  basis  of,  121  ;  de- 
termining point  of,  123  ;  equation 
of  cost  and  price,  125  ;  phenomena 
of,  129,  130,  131  ;  rise  and  fall  of, 

132  ;  their  movement  in  agriculture, 

133  ;  their  movement  in  uncivilized 
countries,   134  ;  price  of  labor  fol- 
lows universal  law  of,  135  ;  law  of, 
149  ;    how  reduced,  337  ;  effect  of 
tariff  upon,  343,  344 

Production,  inadequacy  of  current 
views,  68,  69 ;  character  of,  70 ; 
nature  of,  not  changed  by  complex- 
ity, 71  ;  necessary  factors  in,  72 ; 
law  of,  summarized,  89  ;  cost  of,  de- 
fined, 122 ;  popular  errors  about 
cost  of,  137-140  ;  cost  of,  how  de- 
termined, 143  ;  involves  distribu- 
tion, 176  ;  instruments  of,  need  not 
be  owned  by  laboring  classes,  177  ; 
cost  of  the  controlling  element  in 
price  movement,  391 

Profit,  true  nature  of,  123  ;  does  not 
exist  at  the  price-determining  point, 
123  ;  origin  of,  126  ;  law  of,  249  ; 
views  of,  since  Adam  Smith  and 
Ricardo,  249,  250  ;  Marx's  theory 
based  on  false  views  of,  251-258  ; 
equitable  nature  of,  127,  258-260  ; 
ratio  of  to  product  and  wages,  262- 
279  ;  compound  profit  not  permitted 
by  economic  law,  380 


446 


INDEX. 


Profit-sharing,  not  the  true  remedy 
for  low  wages,  217 

Progress,  economic,  historic  tendency 
of,  how  it  differs  from  social  and 
political  progress,  n  ;  man  as  an 
industrial  and  social  factor,  12  ; 
definition  of,  14 

Progress,  social,  character  of,  2  ; 
definition  of,  5  ;  not  identical  with 
change,  4  ;  its  historic  tendency,  5  ; 
universal  character  of,  10  ;  order  of 
phenomena  in,  15,  17  ;  caused  by 
human  wants,  22  ;  is  the  resultant 
effect  of  resolution  of  social  forces, 
25 

Protection,  distinguished  from  pater- 
nalism, 319  ;  its  relation  to  civiliza- 
tion, 338  ;  relation  of,  to  wages  in 
nou-protected  industries,  349-353  ; 
its  influence  upon  less  advanced 
countries,  357,  358  ;  applied  to  for- 
eign and  domestic  relations,  359  ; 
promotes  free  trade,  economic  basis 
of,  360  ;  its  domestic  application,  361 

R 

Rent,  Ricardo's  definition  of,  218  ; 
true  definition  of,  219,  221  ;  cause 
of,  222  ;  Walker's  view  considered, 
223-230  ;  not  a  social  tax,  230  ;  true 
nature  of,  231  ;  relation  of,  towages, 
235  ;  effect  of  high  wages  on,  234  ; 
effect  of  abolishing,  235  ;  subject 
summarized,  236 

Revolution,  difference  between  French 
and  American,  59 

Ricardo,  93,  101,  138,  139,  141,  143- 
145,  147,  164,  179,  194,  195,  218, 
221-223, 228, 237,  249,  251,  257,  366 

Rodbertus,  250,  251,  262 

Rogers,  Thorold,  46,  55,  56,  101 


Slavery,  abolition  of,  why  opposed  by 
the  Southern  planter,  389 

Smith,  Adam,  37,  38,  58,  68,  90,  91, 
93,  100,  101,  137,  144,  191,  228, 
249,  284,  366,  379 

Socialism,  its  appearance,  how  ex- 
plained, 415,  428-430 

Society,  not  an  organism,  5  ;  Spencer's 
view  of,  300-303  ;  distinction  be- 
tween society  and  an  individual 
organism,  304,  305  ;  view  presented 
accords  with  evolution,  305,  306  ; 
definition  of,  308 ;  Prof.  Clark's 
error,  308,  309 


Spencer,  Herbert,  20,  168,  169,  299- 
304,  307,  308 

State,  the,  distinguished  from  society, 
295  ;  relation  of,  to  the  individual, 
298  ;  subordinate  to  the  individual, 
313,  315  I  its  proper  sphere,  316, 
318,  321  ;  static  and  dynamic  func- 
tions of,  370-372 

Statesmanship,  controlling  principle 
of,  312 

Strikes,  430  (see  also  Combination  of 
labor). 

Sumner,   342 

Supply,  not  identical  with  demand, 
no;  caused  by  demand,  in  ;  its 
relation  to  price,  112  (see  also 
Demand  and  supply)  ;  origin  of, 


Tariff,  errors  regarding,  336,  339  ; 
effect  of,  on  home  market,  342-349  ; 
economic  regulation  of,  359  (see 
also  Trade,  international). 

Taxation,  its  economic  basis,  362-364  ; 
the  mobility  of,  364,  367  ;  its  ulti- 
•mate  effect  on  profits  and  wealth, 
367,  368  ;  nature  of,  369,  381  ;  its 
effect  upon  production,  369  ;  true 
theory  of,  based  upon  the  relation 
between  consumption  and  produc- 
tion, 370  ;  not  an  evil,  372  ;  how 
taxes  should  be  levied,  paid,  and 
collected,  372-377  ;  equity  of  land- 
tax,  378,  379  ;  profits  not  added  to 
taxes,  380 

The  Social  Problem,  how  it  must  be 
solved,  392 

Trade,  free  (see  Laissez  faire). 

Trade,  international,  its  object  to 
further  national  development,  323  ; 
superiority  of  home  over  foreign 
market,  327,  330  ;  its  basis  protec- 
tive but  not  paternal,  331-337  ;  pop- 
ular fallacies  about,  338  ;  the  law  of, 
339  ;  character  of  a  tariff  not  yet 
understood,  339  ;  effect  of  superior 
machinery  on,  341  ;  effect  of  tariff 
on  home  market,  342-349 

Trusts,  409,  410,  411,  413,  414,  492 
(see  also  Combination  of  capital). 


Value,  Adam  Smith's  definition  of,  90; 
differs  from  utility,  91,  99;  defini- 
tion of,  92  ;  same  as  price,  93  ; 
general  rise  in,  possible,  97  ;  it  is  a 
relation  of  things  to  man,  98 


INDEX. 


447 


w 

Wages,  origin  of,  46  ;  permanent  rise 
of,  50 ;  affected  by  variation  in  cost 
of  living,  137 ;  their  relation  to 
machinery  and  to  extent  of  the 
market,  144 ;  Wood's  theory  of, 
145,  184-192  ;  the  measure  of  con- 
sumption, 148  ;  high  wages  make 
low  prices,  149  ;  Clark's  theory  of, 
192-199  ;  definition  of,  201  ;  real 
and  nominal,  202 ;  law  of,  203  ; 
basis  of,  205  ;  various  phenomena 
of,  206-216  ;  remedy  for  low,  217  ; 
surplus  wages,  266  ;  their  relation 
to  net  product,  271  ;  relative  in- 
crease of,  276,  279 ;  how  affected 
by  international  policy,  332  ;  in 
non-protected  industries,  349-353  ; 
how  affected  by  tariff,  353,  354  ; 
how  affected  by  taxes,  366  ;  in  what 


respect  they  are  like  taxes,  369  ; 
(see  also  Index  to  Wealth  and  Pro' 
gress) 

Walker,  64,  77,  175,  179,  180,  181, 
184,  221,  223,  224,  228,  230,  233, 
237-240,  242 

Wants,  their  relation  to  the  intellect, 
physical  and  social,  82,  83 

Ward,  17 

Wat  Tyler  insurrection,  51 

Wealth,  its  relation  to  intelligence  and 
morality,  16  ;  current  definition  con- 
sidered, 63-65  ;  attributes  of,  65  ; 
definition  of,  67  ;  twofold  function 
of,  74 ;  not  identical  with  money, 
151  ;  distribution  of,  175  ;  function 
of  productive  and  consumable,  177, 
178;  order  of  its  distribution,  178- 
183  ;  how  made  cheap,  333 

Wood,  Stuart,  144-148,  184-187, 190- 
192 


INDEX  TO   "WEALTH    AND    PROGRESS." 


B 

"Black  Death,"  the,  its  bearing  on 
the  wages-fund  theory,  51  ;  not  the 
cause  of  rise  of  wages,  121—124 

Brassey,  86,  102,  164 


Cairnes,  39,  41,  42,  43,  47 

Capital,  it  is  not  stored-up  labor,  17  ; 
it  is  the  creator  of  wealth,  17-22; 
how  it  becomes  a  factor  in  produc- 
tion, 25  ;  not  due  to  abstinence,  23, 
28,  29  ;  is  not  the  measure  of  wages, 

59 

Children,  education  of,  341  ;  propor- 
tion of,  in  industry,  364 

Consumption  determines  wages  and 
production,  58 

Cost  of  living,  what  it  depends  upon, 
96  ;  determines  wages,  98  ;  charac- 
teristics of,  in  India  and  China, 
104  ;  also  in  England,  105-107 ; 
determines  nominal  wages,  115  ;  by 
what  causes  affected,  162  ;  in  dif- 
ferent countries,  165 

Cotton  cloth,  capital  invested  in,  per 
operative,  25,  26 

Crime,  decrease  of,  since  1850,  319  ; 
in  England  and  America,  353 

D 

Distribution,  natural  order  of,  59 
E 

Eight-hour  system,  its  effect  upon 
wages,  251-259;  its  economic  ef- 
fects, 259-261  ;  its  bearing  upon 
idleness  and  upon  consumption  and 
production,  265 ;  its  relation  to 
profits,  266-272  ;  its  effect  on  rent, 
274-284  ;  social  and  political  ne- 
cessity of,  355-377 

Employers,  cause  of  their  opposition, 
241  ;  duty  of,  273  ;  their  mistaken 
industrial  policy,  359 


F 

Factory  legislation,  its  history  in  Eng- 
land, 285-303  ;  its  effect  in  England, 
304-3" 

Family  income,  of,  not  increased  by 
wages  of  wife  and  children,  167-175 

Famines,  phenomena  of,  110-116,  120 

Fawcett,  44 

Free  towns  and  cities,  their  relation 
to  industrial  evolution,  116-119, 
141,  142.  (See  also  Index  to  "  Prin- 
ciples of  Social  Economics.") 

Freedom,  real  nature  of,  205 


G 


George,   Henry,  60-68,    70,  90,  275, 

276 

Giffen,  Robert,  313,  315 
Guizot,  118 


H 


Hallam,  107 

Hanseatic  confederacy,  the,  its  effect 
on  English  commerce,  125 

Hours  of  labor,  effect  of  reducing, 
240-243 ;  principle  which  should 
govern  reduction  of,  243  ;  applica- 
tion of  this  principle,  249 


Idleness,  not  incompatible  with  an  in- 
crease of  wages,  113  ;  effect  of  en- 
forced, 237  ;  cause  of  enforced,  its 
relation  to  leisure,  239  ;  how  affected 
by  an  eight-hour  system,  265 

Increasing  returns,  what  is  meant  by, 
25  ;  how  secured,  27 

Industrial  depressions,  345 

Interest,  its  relation  to  wages,  212. 
(See  also  Index  to  "Principles  of 
Social  Economics.") 


449 


450 


INDEX. 


Jevons,  Professor,  310 
L 

Labor,  not  the  creator  of  all  wealth, 
22  ;  its  relation  to  the  production 
of  wealth,  77  ;  its  price,  how  deter- 
mined, 79  ;  the  cost  of,  to  the  la- 
borer, 84.  (See  also  Index  to  "  Prin- 
ciples of  Social  Economics.") 

Laborer,  the,  his  condition  under 
slavery  and  under  wage-conditions, 
78  ;  his  condition  in  India,  86,  102  ; 
his  condition  in  China,  102,  103  ; 
legislation  in  regard  to,  128-139  ! 
his  condition  in  England,  143,  149- 
161  ;  his  condition  in  the  United 
States,  in  Europe,  and  in  the  East, 
162-167,  177-  (See  also  Index  to 
"  Principles  of  Social  Economics.") 


M 


Machinery,  improvements  in,  how 
determined,  23,  24,  25  ;  its  relation 
to  high  wages,  30  ;  its  relation  to 
wealth,  33 

Marx,  Karl,  15,  275,  276,  342 

McCulloch,  34,  165 

Mill,  34,  39,  42,  43,  50,  155,  168,  266, 
267,  310 

Mulhall,  314,  335-337,  347,  348 


O 


Opportunity,  social,  the  measure  of 
civilization,  203,  204  ;  its  definition, 
231  ;  determines  character  of  a 
people,  379 


Perry,  36,  44 

Piece-work,  wages  under,  179-186 

Population,  foreign,  361 

Poverty,  how  diminished,  34  ;  not  due 
to  distribution,  228  ;  the  remedy  for, 
229  ;  not  due  to  wealth  of  rich,  275  ; 
decrease  in,  323  ;  makes  cheap  vo- 
ters, 373 

Prices,  their  law,  79-83 ;  their  re- 
lation to  standard  of  living,  effect  of 
their  sudden  rise  or  fall  on  nominal 
wages,  97  ;  table  of,  152  ;  of  wheat, 
156  ;  trades-union  prices,  164 ;  for 
piece-work,  181-186 ;  fall  of  a  cri- 


terion of  social  progress,  311  ;  in 
various  countries,  333  ;  in  the  United 
States,  347 

Production,  improved  methods  of,  de- 
pend upon  increased  consumption, 
28  ;  its  evolution,  33  ;  is  determined 
by  consumption,  58 

Profit,  does  not  come  out  of  wages, 
56.  (See  also  Index  to  "  Principles 
of  Social  Economics.") 

Progress,  industrial,  the  cause  not  the 
result  of  political  freedom,  205-211  ; 
comparison  of,  in  various  countries 
since  1850,  329 

Progress,  social,  shown  by  rise  of 
wages,  fall  of  prices  in  England, 
311-325  ;  in  America,  325-328 


R 


Rent,  Walker's  view  of,  55  ;  its  bear- 
ing on  wages,  63  ;  for  agricultural 
purposes,  65  ;  to  reduce  it  would 
not  increase  wages,  212  ;  how  af- 
fected by  an  eight-hour  system, 
274-284  ;  a  rise  of,  implies  a  rise  of 
wages,  279.  (See  also  Index  to 
"  Principles  of  Social  Economics.") 

Rogers,  Thorold,  107,  112,  121,  123, 
124,  130,  137,  148,  151,  154,  163 


Smith,  Adam,  34,  103 

Social  reform,  in  relation  to  women, 
207,  208 ;  to  drunkenness,  209  ; 
not  secured  by  arbitrary  abolition  or 
manipulation  of  rent,  profits,  inter- 
est, taxes,  etc.,  211  ;  socialistic  at- 
tempts at,  are  inadequate,  214 ; 
profit-sharing  will  not  secure  it, 
219  ;  nor  distributive  co-operation, 
221  ;  trades-unions  come  nearer  to 
securing  it,  227  ;  produced  by 
greater  aggregate  amount  of  wealth 
per  capita,  229  ;  true  basis  of,  233  ; 
first  condition  of,  234 

Standard  of  living,  its  determining 
influence  on  wages,  89,  96,  120; 
determines  real  wages,  115;  its  re- 
lation to  cost  of  living,  127,  159  ; 
how  determined,  187-190 ;  social 
wants,  how  determined,  190-195  ; 
influences  which  determine  social 
character,  195-204 

Strikes,  their  origin  traced  to  theory 
of  demand  and  supply,  38 

Summary  and  conclusion,  378-382 


WEALTH  AND  PROGRESS. 


451 


Taxes,  their  relation  to  wages,  212 
Tenement-houses,    their  condition  in 

cities,  371 
Thornton,  39,  40 
Truck  system,  the,  367 


Value,  the  nature  of,  73,  79 
W 

Wages,  their  relation  to  production, 
9  ;  how  affected  by  capital,  21  ; 
their  relation  to  prices,  27  ;  to  ma- 
chinery, 30 ;  arbitrary  rise  of,  im- 
possible, 31 ;  their  relation  to  profits, 
32  ;  their  rise  the  basis  of  progress, 
34 ;  how  affecfed  by  wages-fund 
theory,  35-52  ;  Walker's  theory  of, 
53~59  *  Henry  George's  theory  of, 
60-70  ;  definition  of,  71-73  ;  real 
and  nominal,  74,  75  ;  the  economic 
law  of,  76-87  ;  arbitrary  and  eco- 


nomic, 87  ;  tme  theory  of,  89 ; 
fixed  by  dearest  class,  93  ;  represent 
standard  of  living,  88-95  ;  relation 
to  cost  of  living,  96-98  ;  similarity 
of,  in  1 3th  century,  100-109  >  rise  of, 
in  i4th  century,  110-130  ;  arrested 
in  isth  century,  132-144;  move- 
ment of,  from  1 5th  to  igth  century, 
145-160 ;  universality  of  law  of, 
162-178  ;  under  piece-work,  179- 
186  ;  ultimate  analysis  of  law  of, 
187-203.  (See  also  Index  to  "  Prin- 
ciples of  Social  Economics.") 

Wages-fund,  its  statement,  fallacy, 
and  inadequacy,  35-52 

Walker,  Francis  A.,  53-59,  62 

Wants,  how  effected  by  social  con- 
dition, 120 ;  they  determine  the 
standard  of  living,  187  ;  their  rela- 
tion to  wages,  176,  177  ;  how  cre- 
ated, 201  ;  their  basis,  202 

Wealth,  prevalent  notions  about,  i  ; 
condition  of  man  before  the  accumu- 
lation of  wealth  began,  2 

Women,  wages  of,  168,  172-174; 
their  economic  condition,  207  • 


WEALTH  AND  PROGRESS. 

A  CRITICAL  EXAMINATION  OF  THE  LABOR  PROBLEM. 
BY  GEORGE  GUNTON. 

12JVO,  400  PAGES.    PAPER,  50  CENTS;  CLOTH,  $1.00. 


OPINIONS  OF  THE  PRESS. 

"  Mr.  Gunton  has  written  one  of  the  ablest  works  on  a  question  of  vast 
interest  which  has  issued  from  the  press  in  many  years." — Chicago  Times. 

"It  is  a  plain,  practical,  common-sense  view  by  a  sensible  American, 
where  every  point  is  argued  and  a  plain  reason  given  for  its  adoption." — 
Chicago  Inter-Ocean. 

"  The  book  is  one  of  infinite  suggestion  and  also  of  practical  value." — 
Boston  Traveller. 

"  No  one  can  rise  from  the  reading  of  '  Wealth  and  Progress'  without  the 
profound  conviction  that  it  contains  the  first  attempt  ever  made  to  put  the 
claim  for  an  eight-hour  system  on  a  truly  economic  and  scientific  basis." — 
New  York  Star. 

"  Mr.  Gunton's  work  may  be  declared  without  hesitation  to  be  the  most 
notable  contribution  to  the  science  since  Walker's  '  Wages  Question.'" — Po- 
litical Science  Quarterly. 

"  The  book  contains  a  great  deal  of  good  sense,  especially  in  its  criticism 
of  the  one-sided  views  of  the  standard  economical  teachers. " — New  York  Sun. 

"  The  book  contains  an  immense  amount  of  exact  information  regarding 
all  branches  of  the  subject,  and  will  be  valuable  as  a  book  of  reference  to 
all  students  of  the  economical  question." — New  York  World. 

"  Mr.  Gunton  has  performed  his  task  in  a  brilliant  and  masterly  manner, 
and  with  a  logical  clearness  and  accuracy  in  argument  that  leaves  scarcely  a 
question  of  the  truth  and  soundness  of  the  position  he  has  taken.  The  book 
is  in  many  respects  the  most  important,  most  thorough,  and  most  satisfying 
that  has  been  added  to  the  literature  of  the  subject." — Boston  Evening 
Gazette. 

"  The  author  is  very  thorough,  and  contributes  much  valuable  thought  to 
the  subject." — Brooklyn  Eagle. 

"The  author  presents  a  picture  of  the  'social  crisis,'  and  develops  his 
theory  by  historical  illustration  and  demonstration.  His  presentation  is  fas- 
cinating and  skilful." — Boston  Journal. 

"It  is  at  once  philosophic  and  eminently  practical.  It  announces  the 
natural  laws  which  lie  at  the  basis  of  the  labor  problem,  elucidates  them  by 
historical  data,  and  enforces  their  soundness  with  a  logical  cogency  that 
carries  conviction." — Eastern  Argus  (Portland,  Me.). 


"  Mr.  Gunton  is  the  latest  comer  in  the  field,  and  he  performs  the  job 
that  he  undertakes.  We  have  never  seen  a  neater  piece  of  refutation  than 
that  to  be  found  between  pages  sixty  and  seventy,  wherein  the  George  theory 
is  particularly  analyzed." — Journal  of  Commerce  (New  York). 

"The  practical  experience  of  Mr.  Gunton  gives  particular  interest  and 
value  to  his  book,  which  in  manner  and  matter  would  do  honor  to  the  most 
practised  writer." — Commercial  Advertiser  (New  York). 

"  It  is  the  most  thorough  and  comprehensive  treatment  of  the  labor  ques- 
tion ever  presented." — Pater  son  Labor  Standard. 

"  The  book  is  conspicuous  for  its  close  backing  of  all  theory  by  practical 
demonstration." — North  American  Review. 

"  His  book  is  the  work  of  a  sincere  man  and  careful  thinker,  and  deserves 
wide  reading." — Boston  Post. 

"  If  any  one  cares  to  know  what  makes  for  human 'progress  in  the  field  of 
economics,  here  is  the  book  of  all  books  which  America  has  ever  produced." 
—  The  Public  (Abington,  Mass.). 

"We  commend  Mr.  Gunton's  book  as  a  calm  and  instructive  argument, 
which  is  entitled  to  serious  consideration,  and  he  deserves  the  thanks  of  all 
sound  economists." — The  American  (Philadelphia). 

"  Mr.  George  Gunton  has  done  a  real  service  in  publishing  his  '  Wealth 
and  Progress.'  It  is  refreshing  to  read  the  utterances  of  a  man  whose  tal- 
ents and  studies  have  fitted  him  for  the  work  he  has  undertaken." — Boston 
Advertiser. 

"  If  the  arguments  in  this  book  could  be  taught  in  every  high-school  and 
college  in  the  land,  we  might  hope  for  a  speedy  settlement  of  the  trouble- 
some and  knotty  problems  of  the  day." — Public  Opinion  (Washington, 
D.  C.). 

"  It  is  the  most  noteworthy  of  recent  American  contributions  to  the  eco- 
nomics of  the  labor  problem.  It  will  at  once  give  its  author  an  assured 
standing  as  a  political  economist." — Chicago  Dial. 

"  It  contains  much  originality  of  thought,  boldly  asserted  and  consistently 
maintained,  and  is  presented  in  such  pleasant  and  attractive  form  that  much 
of  it  possesses  the  interest  of  a  novel." — Fall  River  News  (Mass.). 

"We  are  impressed  with  the  thoroughness  of  the  author's  investigation 
and  the  strength  of  his  argument,  no  less  than  by  the  clearness  and  vigor  of 
his  style." — Christian  Advocate. 

' '  The  argument  of  Mr.  Gunton  is  supported  by  many  facts  well  calculated 
to  prove  his  theory." — Chicago  Herald. 

"It  is  a  very  remarkable  book,  and  at  the  outset  it  will  be  very  highly 
appreciated  by  those  best  versed  in  economic  science." — Sunday  Tribune 
(Minn.). 


"  '  Wealth  and  Progess '  is  a  handsome  contribution  to  the  science  of  eco- 
nomics which  is  sure  to  command  attention."  —  New  Orleans  States. 

"  It  is  a  contribution  to  economical  literature  of  marked  value." — Scien- 
tific Arena. 

"  Mr.  Gunton  has  brought  to  his  task  a  large  practical  experience  with 
industrial  affairs,  extended  observation  both  in  Europe  and  America,  and 
clese  study  of  economic  questions." — San  Francisco  Bulletin. 

"  The  book  is  well  written,  and,  while  wholly  opposed  to  socialism  or  the 
vagaries  of  Henry  George's  school,  is  yet  strongly  in  the  interest  of  the 
laboring  clashes." — San  Francisco  Call. 

"  It  is  one  of  the  most  comprehensive  discussions  of  the  labor  question  of 
the  day." — Buffalo  Advertiser. 

"  The  subject  is  treated  in  a  masterly  manner,  and  will  not  fail  to  instruct 
and  profit  those  who  are  interested  in  that  all  important  theme. — New  Bed- 
ford Standard  (Mass.). 

"We  have  in  this  volume  the  last  contribution  of  science  to  the  science 
of  political  economy,  and,  as  it  seems  to  us,  the  most  valuable." — Daily 
Herald  (Omaha). 

"  The  present  volume  is  clearly  written,  and  is,  to  our  mind,  one  of  the 
ablest  contributions  which  has  of  late  been  made  upon  the  vexed  subject." 
— Buffalo  Times.  » 

'  '  Wealth  and  Progress '  is  a  book  designed  to  mark  a  new  era  in  the 
history  of  political  economy." — Commonwealth  (Boston,  Mass.). 

"  The  author  makes  an  exhaustive  and  able  presentation  of  the  subject, 
and  his  work  is  entitled  to  serious  consideration." — Syracuse  "Journal. 

"  The  book  contains  a  large  mass  of  valuable  statistical  information,  and 
should  be  in  the  library  of  every  student  of  the  social  problem." — Labor 
Leader  (Boston). 

"  The  author  has  produced  a  decidedly  readable  and  suggestive  work, 
giving  good  proof  that  political  economy  has  become  a  study  of  prominent 
interest.  He  is  no  visionary  socialist,  but  builds  his  propositions  on  facts 
and  sound  common-sense." — The  Moravian. 

"  It  will  be  readily  admitted  that  he  has  in  this  volume  made  a  valuable 
contribution  to  the  discussion  of  one  of  the  burning  questions  of  the  day." — 
Washington  Post. 

"  We  may  fully  commend  it  as  presenting  many  aspects  of  the  great  ques- 
tion with  remarkable  force." — Hartford  Courant. 

"  By  none  could  such  a  work  have  been  written  but  by  a  master  of  eco- 
nomic science,  a  thorough  reader  of  statistics,  a  lucid  and  comprehensive 
thinker." — Catholic  Quarterly  Re^tieu<. 

'  '  Wealth  and  Progress  '  will  in  time  effect  a  revolution  in  what  is  known 
as  political  economy." — Record  and  Guide  (New  York). 


4 

ENGLISH  NOTICES. 

"  Mr.  Gunton  is  known  in  the  United  States  as  a  hard  student  of  eco- 
nomic questions,  and  as  a  writer  of  high  ability.  That  character  is  fully  borne 
up  by  his  volume  '  Wealth  and  Progress.'  " — The  Scotsman. 

"  Mr.  Gunton  throws  fresh  light  on  a  much-discussed  subject,  and  we  cor- 
dially recommend  his  book  to  our  readers." — Belfast  Northern  Whig. 

"  The  work  contains  immense  and  laborious  research,  and  is  entitled  to 
a  thoughtful  perusal  and  unqualified  respect." — Liverpool  Post. 

"  Mr.  Gunton's  book  is  a  very  important  contribution  to  economic  science, 
and  deserves  the  most  earnest  consideration  from  all  classes  in  the  commu- 
nity."— Literary  World  (London). 

"  '  Wealth  and  Progress'  is  certainly  a  work  of  great  suggestiveness  and 
usefulness.  The  practical  value  of  its  conclusion  is  undeniable.  Its  theory 
goes  beyond  explanation,  and  guides  action — giving,  indeed,  a  new  scien- 
tific sanction  to  schemes  of  social  amelioration  hitherto  taken  in  a  spirit  of 
vague  philanthropy.  He  has  gone  far  to  achieve  what  economists  and  so- 
cialists alike  have  failed  to  do.  He  has  developed  a  theory  of  wages  in 
harmony  with  the  social  instincts  and  tendencies  of  to-day." — Scottish 
Leader. 

"  The  performance  leaves  little  to  be  desired  for  clearness  of  statement  or 
for  aptness  of  illustration." — St.  James's  Gazette  (London). 

"  The  idea  is  presented  with  clearness,  and  the  arguments  in  its  favor,  as 
well  as  some  of  the  objections  to  its  practical  workings,  are  ably  stated." — 
Morning  Post  (London). 

"The  importance  of  the  question,  the  ability,  earnestness,  and  experi- 
ence of  industrial  affairs  which  Mr.  Gunton  brings  to  the  study  of  a  difficult 
problem,  entitle  his  work  to  respectful  consideration.  Mr.  Gunton's  book 
is  very  welcome,  as  it  enforces  from  an  economical  point  of  view  the  great 
importance  which  must  be  attached  to  character."  —  Charity  Organization 
Review  (London). 

"  Mr.  Gunton's  book  is  written  with  great  clearness  and  force  of  style  and 
thought,  and  attacks  two  of  the  most  long-standing  doctrines  in  Political 
Economy — the  doctrine  of  the  wages-fund,  and  the  determination  of  wages 
by  supply  and  demand."—  The  Spectator  (London). 

For  sale  by  booksellers  ;  or  will  be  sent  by  mail,  postage-paid,  on  receipt  of 
the  price,  one  dollar. 


D.  APPLETON  &  Co.  MACMILLAN  &  Co. 

i,  3  &  5  BOND  ST.,  NEW  YORK  LONDON,  ENG. 


UCSB  LIBRARY 

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